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CLAY SMITH - RETAIL
Retail here and nationally is pretty much unchanged. The sector is still
reconciling store locations and performance. For DFW, we are in good
shape because limited development continues to drive tenant demand in
our fast-growing market. In fact, construction lags the “good ole” days
by a wide margin. For example, we delivered 6 to 8 million square feet
annually from 2000 to 2008. Today, it is around 2 million. This lack of
supply has shopping center occupancy now closing in on 94 percent, with
most “good” spaces fully leased. The one sector that is growing to serve
our expanding population is grocery, as new and existing players such as
Winco, Fresh Market, HEB, Tom Thumb, and Albertson’s carve out their
territories. In contrast, most other formats have been guarded, although
fast-casual restaurants, some junior anchors, and theaters continue to scout
for opportunities.
MICHAEL SWALDI - LAND
Over the past five years we’ve seen a steady rise in pricing across all sectors. As we sit here in the last half of 2016, the capital markets remain strong.
At this point, the rapid increases have begun to stabilize – but it is hard to
generalize because it depends on a location, land use, and most importantly,
unique site attributes. For single family, land has hit the top, especially in
some northern suburbs, because building economics are now stretching
affordability. As I say that, pockets are emerging in south and east DFW,
like Midlothian, that are affordable, have good public schools, and easy
access to employment centers. In comparison, demand for multifamily land
has slowed as developers are positioned to accommodate today’s pipeline.
In contrast, office, retail, and industrial are in high demand. Actually, I’m
glad to be here in DFW. Even though economic cycles come and go, our
growth outlook will continue to make land acquisition and development an
important business ahead.
dfw sector watch
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TORREY LITTLEJOHN - TENANT REP
Tenants continue to experience sticker shock. This goes beyond the high
rent increases, and now spills over into paying for parking for the first time
and increased construction costs for refitting their space. To balance costs,
my tenants are looking for ways to become more efficient. The story of
increasing density is not new, but it is a reality that not all buildings can
accommodate this shift. Even properties built in the late 1990s and 2000s
are ill-equipped to accommodate this density. The issue is not merely more
employees, it is the increased parking and demands on building systems like
HVAC, elevators, and restrooms. This is a challenge to owners on how to
make these older assets “competitive”. Lower rents alone will not attract
tenants to these properties. Rather, new capital investment is necessary
to keep these properties marketable to both tenants and investors over the
longer-term.
TIM JORDAN - CAPITAL MARKETS
There is good liquidity in the market, with life companies, CMBS, and
banks all continuing to be active. The key driver for our DFW area is
the dynamic growth we are seeing, with job gain of well over 100,000
annually fueling all the major property types. The one challenge we see is
construction financing, partly due to the recent “high volatility commercial
real estate” (HVCRE) banking regulations that seek to balance CRE loan
risk. At this point in our cycle, this has helped moderate the development
pipeline across all property types, ensuring that projects with good
sponsorship and solid equity are taking the lead.