Hot Streak Leads to the Best Market Dallas has Seen in Years
Dallas is on a hot streak. This is the best market Dallas has seen in years. Companies are expanding and corporate relocations are driving new development in office, industrial and retail.
Based on the healthy, active market of 2015, the momentum should carry over and remain strong through the first half of 2016.
Dallas has become a headquarters hub in the past few years with companies like Toyota and Liberty Mutual putting down roots in the Metroplex. Companies are doing well financially and are growing, which is great news for the office sector.
Leasing activity is at an all-time high with all sizes of companies experiencing growth. Office expansions and mid-term lease extensions are becoming the norm. In November, GEICO’s regional headquarters relocated to a larger facility with the goal of hiring nearly 200 employees before year’s end.
The insurance company leased 224,000 square feet at 2280 Greenville Ave. in Dallas, brokered by Tom Lynn and Nick Lee, CCIM, of NAI Robert Lynn and Griff Bandy of NAI Partners in Houston. GEICO’s former headquarters building in the North Dallas area is now on the market.
We’re also seeing the employment industry shift from focusing solely on clients to employee retention. Employers are concentrating on impressing the workforce with office amenities and locations within close proximity to restaurants and entertainment.
The challenge for brokers is finding the right space in a great location with the ability to customize. The demand for this type of atmosphere is spurring new developments. Frisco’s The Shops at Legacy is a prime example of the work, live, play mentality employers are seeking to create for today’s workforce.
Landlords are also keeping up with this trend and are investing in renovations for existing buildings. For instance, Dallas’s iconic building, The Crescent, is undergoing renovations to ensure it remains an integral part of the growing, pedestrian-friendly neighborhood that continually seeks upscale dining and shopping options. As companies continue to grow and increase their footprints, these trends should carry on into 2016.
The Dallas retail market is strong. Medical users are absorbing retail space and paying top dollar. Urgent care facilities and freestanding emergency rooms have become standard with more than half of millennials visiting these types of retail clinics instead of seeing a primary care physician as found in a survey by the nonprofit FAIR Health.
New restaurant concepts that are moving into the market are finalizing transactions with a smaller footprint between 1,500 and 2,500 square feet. Banks have felt the effects of technology and remain relatively inactive due to the ease and convenience of deposits via smartphone and the proliferation of ATMs.
In Fort Worth, retail trends reflect a surge of leasing activity in the fourth quarter, propelling the continuously falling vacancy rates.
As a result, there is a consistent spur of new development and a tremendous amount of new, proposed developments like Presidio Junction in far north Fort Worth and the Waterside development at Bryant Irvin, also in Fort Worth. As new developments emerge, Fort Worth is also seeing new restaurants enter the market that are already established brands in Dallas.
As vacancy in Fort Worth declines, lease rates are steadily climbing and there is high competition for space. On the investment sales side of the retail market, there is a similar story with cap rates becoming tighter, limited supply and increasing prices, making it a competitive market to acquire income-producing properties. These trends should stay on pace through 2016.
2015 delivered nearly 18 million square feet of new industrial product and more than 13 million square feet of space were under construction during the year in metro Dallas.
With major e-commerce retailers up and running, the market is being driven by a steady dose of business-to-business and logistics companies looking in the 40,000 to 120,000-square-foot range. Industrial properties have been leasing at a healthy pace with 80 to 90 percent occupancy of the new space spoken for, and 30 percent of the space now under construction already pre-leased.
Organic growth is abundant, with many users in the market looking to expand. The movement of these growing companies to first generation buildings is freeing up quality, second generation buildings which provide lower lease rate options.
Lease rates have plateaued, but remain strong and concessions are tight, but more flexible. The healthy supply and good demand should be positive as we begin 2016.
The future is bright for the Dallas commercial real estate market and we look forward to a great year in 2016.
— By Mark Miller, president, NAI Robert Lynn. This article originally appeared in the February 2016 issue of Texas Real Estate Business.