Dallas/Fort Worth: This Year's Good, Next Year's Even Better

DALLAS-If all economic indicators are on target, Dallas/Fort Worth’s commercial markets are headed in the right direction, according to a statistical overview presented at Transwestern Commercial Services’ third annual Trendlines.

“This has definitely been a better year than last year,” Jack Eimer, president of the Houston-based Transwestern’s central region, told the crowd of clients and brokers attending last night’s confab in the Park City Club at 5956 Sherry Lane in North Dallas. He says building owners are starting to smile, whether they’re selling at higher prices or leasing with fewer concessions.

Gregory A. Leisch, CEO of Delta Associates, Transwestern’s Washington, DC-based research affiliate, forecasts that the flex industrial market will transition to a landlords’ market in mid-2006; office will swing in the first half of 2007; and multifamily will roll around before 2007 closes its door. Throughout the transition, cap rates will remain relatively low and moderately rise as interest rates go up, he said.

Leisch predicted Dallas/Fort Worth will gain 68,300 jobs annually for the next three years. “That will be plenty enough jobs to support commercial real estate in the next few years,” he said. “The good news isn’t the quantity of jobs that we’re growing, but the good news is the quality of jobs.” The leading sectors are government, business/professional and health/education–all categories that translate into class A space needs, both office and residential.

In his office overview, Leisch said the region is on track to meet its historical absorption of 4.9 million sf despite the 4.5 million sf that’s under construction. “It’s half preleased,” he said.

Office vacancy, the hot button for local and national market watchers when discussing Dallas, should taper to 17.6% next year, Leisch said. It’s currently 19.3%, significantly lower than other analysts because Delta includes single-tenant and owner-occupied buildings in its collation. Fort Worth’s current vacancy is 11.7%; it should dip to 9.7% in the coming year, according to Leisch. The upshot of the office overview is Dallas will remain at a level that keeps rents flat while Fort Worth is sure to see some gains, he said.

In the industrial sector, the region ranks fourth in the nation for absorption, with 9.4 million sf as its historical average. Of the 4.5 million sf that’s under construction, one-third is preleased, Leisch said. “The fundamentals of this product type look promising,” he added. “Demand is likely to outstrip deliveries over the next 12 months.”

Including retail into the presentation for the first time this year, Leisch said absorption is running 1.2 million sf in a 127-million-sf market. He predicted “asking rents will continue to climb up at a nicely metered rate.”

Leisch reported the multifamily sector made its first gains in same-store rent growth after 2.5 years of negative effective rents. “We should see some improvement in the periods ahead,” he added, citing an overall 8.8% vacancy versus the 6.4% national average.

Leisch said the condo market is gaining in popularity and pricing in Dallas/Fort Worth. He predicted the year will end with a 57% increase in sales over last year’s 825. To date this year, there have been 650 condo sales. However, prices are running 25% to 40% higher than last year. As for the pipeline, mostly adaptive reuse product, shows 1,704 units will come on line this year, up 237 from last year.