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DALLAS-In a disciplined approach to today’s economy, retail and residential developers in Dallas/Fort Worth are keeping the region headed north while comparable marketplaces stumble. Retail construction is at its lowest level in decades and sharply curtailed housing starts are succeeding in providing a semblance of sanity locally despite a troubled sector nationwide.

“There’s a lot of opportunity in a market with uncertainty. If you work hard and smart, you’ll make it,” Herb Weitzman, chairman and CEO of locally based Weitzman Group and Cencor Realty Services, told 400 developers, brokers and investors attending yesterday’s 18th annual forecast at Nick & Sam’s Restaurant at 3008 Maple Ave. in Dallas. Unlike many parts of the US, North Texas ended 2007 on a high note for retail and the prediction for 2008 isn’t too bad either despite concerns over capital markets and being a presidential election year.

On the housing front, Ted Wilson, partner of Dallas-based Residential Strategies Inc., said the North Texas market could right itself by the third quarter as developers opt to dig into inventory rather than frame new houses.

Wilson says the finished-home inventory is 9,588 or a three-month supply and the number will drop even more in the coming months. Last year’s 30,606 housing starts were the lowest in seven years. And, the 38,149 closings helped to keep the region ahead of other parts of the nation. In North Texas, the median home price is now $203,000 while Dallas’ average is $223,000 and Fort Worth’s $179,000.

But, the reality is Dallas/Fort Worth is not in equilibrium. Wilson’s research shows a 38.6-month supply of developed single-family lots; 24 months is considered as balanced. He says builders will need to decrease lot production by 13,000 to 15,000 for two consecutive years to achieve equilibrium. Yet, there are 20,337 lots under development in the metroplex.

As would be expected, there has been a slowdown due to the capital markets. The $150,000 and under category is being pulled back the most as developers react to the national economy. All categories saw decreased starts, with the $301,000 and over as the least impacted. “Just because the market has slowed,” Wilson says, “doesn’t mean the region won’t grow.”

Whether retail or residential, Weitzman says there is “a lot more optimism than pessimism” to be gleaned from the results of this year’s survey. Grocery chains are still expanding and newcomers are back on the region’s doorstep. Even a staple like Kroger, which has 16% of the market share, will be bringing a new concept to town: a 101,000-sf to 127,000-sf format with jewelry and home furnishings tucked alongside groceries and a Starbucks right at the heart. And once again, restaurant clusters are thriving anchors for lifestyle centers in a marketplace where 1.7 million people eat out every day.

Bob Young, Weitzman’s managing director, said 2007 wasn’t a record-setting year, but it was strong and ended without any major move-outs. The drive-by survey canvasses 1,300 shopping centers with 25,000 sf or more. This year’s findings showed the 166-million-sf inventory is 89.3% occupied despite 3.8 million sf of new product and 5.7 million sf that delivered in 2006. Occupancy leaders are McKinney, 98%; Allen, 97%; Cedar Hill, 96%; and Frisco and the Fort Worth CBD, 95%.

The year ended with absorption of three million sf. And, Young’s quick to add that “we’ve had positive absorption every year in this decade.”

In terms of product type, occupancy in neighborhood centers is 84%; 88.4% in community centers; 92.3% in power centers; 94.4% at mixed-use developments; and 96% at the malls. “The area of concern is neighborhood centers,” Young said, citing high vacancies for 2006-07 deliveries. The sector dropped a full percentage point from 2006, but then so did all product types except mixed use, which held firm at 94%. “We will see significant growth in this category again in 2008 and 2009,” he said.

The grand finale is always Weitzman’s predictions. Five million sf, including a few lifestyle centers, will come on line this year. Occupancy will stay at 89%, its norm for nearly 18 years. Retailers will be cautious about expansions. And investment sales might slow, but they won’t stop. “Not a lot of trading is going on and it could continue for six months,” Weitzman says. “But class A properties will always find a buyer and capital will always find a home.”

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