BY JOE SANTAULARIA, EXECUTIVE VICE PRESIDENT, BRADFORD COMMERCIAL REAL ESTATE SERVICES/CORFAC INTERNATIONAL
Making a real estate investment in a volatile economic environment requires the right timing, pricing, and willingness to act when they align. When it comes to real estate in the Dallas metro, it also requires taking a hyperlocal lens. National, and even regional, dynamics don’t apply neatly to our market. Within each subsector, you can find reasons for optimism and causes for concern. Let’s take a closer look.
Industrial
Industrial has been the darling of real estate investors with the growth of warehouse and distribution and data centers as traditional retail and office declined. However, we’re seeing some softening in larger industrialproduct. Early in the year, it was affecting properties over 200,000SF, now it is 100,000SF and above and leaking into 50,000-100,000. While it remains white-hot for properties under 50,000SF we’re seeing vacancy rates approaching 10% for larger product and repricing for older projects.When spec industrial is priced to sell, it usually means leasing demand is slowing. Developers are taking hits to projected profits, but not real losses asof yet. Breakeven is the name of the game.
Office
Office was the golden asset up to 2016 and started dipping as it was over-invested by investors from outside the real estate industry that had capital to place. Then the COVID pandemic dealt the office another blow in 2020. Las Colinas and downtown Dallas were particularly hard hit.
Now, office is where industrial was in 2011. Investors can find plenty of great B-class assets that can be purchased and revamped to take advantage of some positive shifts in the office class. By working with proven operators, investors can take advantage of opportunities at a lower risk.
Dallas is the number one office relocation market in the U.S., and certain neighborhoods have especially favorable trends. Y’All Street, which is the financial hub that includes Downtown, Victory Park and Uptown, points to the growing influence of Dallas in the financial sector. Goldman Sachs is currently constructing a campus to house their largest workforce outside ofNew York City, which will serve 5,000 employees.
Uptown is garnering the highest rents in DFW at $56/SF for Class AA office.Knox Henderson as $1.0B in new office development; while Victory Park boasts a $3 billion master-planned development with 4,000 new residences.
Residential
Housing is seeing some uneven outcomes from the building boom. In NorthDFW, large development tracts for sale are stalled. Investors’ expectations far exceed what developers can spend. We see an excess inventory of spec houses north of Dallas Metro and out east, leading to new housing developments being repriced. This problem is most keenly affecting the far north of DFW, such as Celina, north of Prosper, east of Lake Ray Hubbard, Rowlett Rockwall, and Fate.
As you come south into the fully developed satellite cities, McKinney, Prosper, Frisco, Mckinney, the inventory wanes due to lack of land sites, and less supply equals steadier values. The unlimited escalation in existing values have ceased. Housing prices in the burbs are stable. South of LBJ is a different story with the exception of housing north of $5.0MM, where pricing reductions are evident.
Conclusion
So, what does this all tell us? You can’t make assumptions about Dallas based on general trends. You have to dig into the subsector and the location and look for evidence of what’s changing and where the opportunities lie. It’s more critical than ever to work with a local brokerage that understands your risk tolerance and timing and can see all the little details that make upthe big picture.