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Market ReportsTexasTexas Market Reports

Why Texas Property Taxes Are Overstated — And What To Do About It

by Taylor Williams

By Lee Winston, partner at Gray, Winston & Hart PLLC No income tax in Texas. The Texas Constitution prohibits it, so local funding depends primarily on property taxes.  But to many Texas businesses, this “necessary evil” has become just plain evil. Over the last several years, property taxes in Texas have exploded.  State politicians have taken notice and are ramping up demands to reduce or eliminate property taxes, but the alternatives are more than unpopular. For instance, nobody wants to pay — and no politician wants to stand for election on — instituting a near 20 percent sales tax. And everyone knows this.  To avoid this reality, lawmakers have pivoted to find a villain, and the appraisal districts that place the taxable value on property are a ready target.  The popular solutions to rein in this villain are appraisal caps, increased exemptions and value limitations, all of which offer relief to residential property owners but do little for commercial owners. And these “fixes” result in a system that is neither equal nor uniform, undermining the constitutional foundation of taxation in Texas. Our elected officials have yet to address the fundamental issue driving the over-valuation of most commercial properties, which is …

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District of ColumbiaMarket ReportsOfficeSoutheastSoutheast Market Reports

DC Office Market Presents an Opportunity for Reclassification and Innovation

by John Nelson

The Washington, D.C., office market is facing challenging times, marked by unprecedented vacancy rates, dwindling demand and a significant supply-demand imbalance. Within these constraints, the flight to quality trend is reshaping how investors and lenders view office assets and should lead to an inventory reclassification.  The divide between high-quality assets and lesser properties widens almost daily, creating a bifurcated market with fierce competition for quality space. Meanwhile, older, less desirable properties languish, accumulating vacancies as they fail to meet current occupier expectations.  Without intervention, the less desirable properties will continue to drag down the market’s perception, obscuring the success of top-tier spaces with a headline vacancy rate. To contribute to the stabilization of the market, office participants must acknowledge this divide and assess distressed assets not as liabilities, but as opportunities to reset and reclassify properties based on realistic usage and demand. Lenders are central to this process as they control a substantial portion of distressed office stock. After years of extending loans to stave off foreclosure during uncertain times, many are now realizing that relief is unlikely to materialize organically. As a result, foreclosures are already up 121 percent in 2024 year-to-date over 2023 in Washington, D.C. On average, …

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6107-State-Highway-6 N.-Houston
Market ReportsRetailTexasTexas Market Reports

The Evolution of the Texas Drugstore

by Taylor Williams

By Jason Baker, principal at Baker Katz If you look back about 150 years or so, drugstores have played a big role in communities nationally and across Texas. From the beginning with small corner pharmacies to today’s large retail chains with 24-hour service, drive-thrus and a wide range of products, drugstores have filled retail and service needs in the communities they serve. However, in the past few decades, there has been a noticeable shift. In the 1980s and 1990s, national chains such as Walgreens and CVS expanded rapidly, often setting up stores at the exact same intersection. These stores became go-to spots for everything from prescriptions to film processing to everyday essentials and necessities. However, their fast-paced growth also came with its own set of challenges, such as high costs of real estate and operational expenses that left the underlying real estate of many of the drugstores vulnerable when market conditions changed. Shifting Consumer Behaviors Force Adaptation Over the past two decades, consumer behavior has changed significantly. With the rise of telehealth, people can now see a doctor on Zoom and get a prescription without ever leaving their home. At the same time, online giants and big-box retailers have also …

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District of ColumbiaIndustrialMarket ReportsSoutheastSoutheast Market Reports

Resilient DC Industrial Market Is Growing But Softening as Vacancy Rates Creep Higher

by John Nelson

The U.S. industrial real estate market continues to sustain, with national vacancy rates steadily creeping toward 7 percent (6.8 percent at the time of this writing). Over the past three years, the industrial real estate market continued to set records and became known as the darling asset class within the commercial real estate community. However, the market is showing signs of reversion to historical velocity and vacancy rates. The industrial vacancy rate is steadily climbing in the Washington, D.C., metro area as demand softens for third-party logistics in second-quarter 2024. Vacancies are up to 6.5 percent after reaching an all-time low of 3.8 percent at the end of 2022.  The market remains tight by historical measures. However, normalized leasing velocity, a few large tenant moveouts and reduced demand is expected to provide upward pressure on the vacancy rate in 2025. Subleasing activity trended upward in the past six to 12 months to over 1.3 million square feet. A few examples of large sublets include 393,000 square feet put on the market at Capital Gateway in Brandywine; Builders First Source moved out of 135,000 square feet at Plaza 500 in Alexandria; and in the second quarter, Western Express vacated 102,000 square …

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Market ReportsRetailTexasTexas Market Reports

Texas Retail Owner’s Dilemma: Buy, Build or Bail?

by Taylor Williams

By Taylor Williams “The greatest victory is one that doesn’t require a battle.” Ancient Chinese military strategist Sun Tzu penned that line as part of The Art of War, but in applying the expression to the (almost) equally cutthroat business of developing and investing in retail real estate, there is some wisdom to be gleaned. In simple terms, sometimes the best decision, at least temporarily, is to do nothing.  Passivity does not come easily to commercial builders and buyers. Where their investors are concerned, these companies often have strict timelines for deployment of funds and even stricter benchmarks for guaranteed returns. When market conditions are favorable, these groups are pressured to maximize growth, in terms of both direct mandates from shareholders and indirect obligations via competitors being aggressive in the market. For better or worse, the market sentiments surrounding real estate development and investment embody classic principles of capitalism, and that’s unlikely to ever change.  But if there is one thing developers, investors, lenders and operators across all asset classes can likely agree on, it’s that market conditions in 2024 have not been favorable. Yet the push for growth has merely slowed, not disappeared. New product must get developed to …

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District of ColumbiaMarket ReportsMultifamilySoutheastSoutheast Market Reports

Strong Investment, Rent Growth Signal Strength for DC Multifamily Market

by John Nelson

The multifamily market in the Washington, D.C., metro area has experienced meaningful shifts in 2024, marked by moderate demand, consistent construction and evolving investment patterns. As a major urban hub, D.C. continues to attract both local and out-of-state investors eager to tap into its growing potential.  Out-of-state capital A key trend in the D.C. multifamily market is the strong influx of out-of-state capital. This year, 44 percent of buyers in our DMV (D.C., Maryland and Virginia) listings came from outside the region, drawn by the area’s stability and long-term growth potential. These out-of-market investors often pay a premium over local buyers, keeping deal volume and pricing competitive even amid rising interest rates. This steady inflow of external capital has reinforced the market’s resilience, underscoring the perceived value of D.C. multifamily assets. The demand from out-of-state investors has also provided stability to the market, helping to sustain price levels and liquidity despite macroeconomic headwinds. By bolstering interest in multifamily properties, this capital flow supports continued growth and positions D.C. as a desirable destination for long-term investment.  As this trend persists, the D.C. metro area is likely to remain a focal point for diverse capital sources, ensuring strength and adaptability in its …

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GeorgiaMarket ReportsMultifamilySoutheastSoutheast Market Reports

For Atlanta’s Multifamily Market, The Grass Is Greener on the Other Side

by John Nelson

Atlanta remains one of the most desirable markets in the country for investors due to its diverse economy, below-national average unemployment rate, steady increase in jobs and population growth. These market fundamentals have translated to a well-performing multifamily market that, despite short-term macro challenges, is in a unique favorable position due to its relatively low supply compared to other peer Sunbelt markets. Demand for multifamily has seen a rebound in 2024 and Atlanta has been resilient in the middle of a multi-year supply wave. Over the past two years, the market delivered approximately 35,000 units and that number is expected to drop to just 9,000 units in 2025 and less than 4,000 units in 2026. This will lead to tightening occupancies and strong rent growth. The city has already recorded its seventh consecutive quarter of net positive net absorption as of the second quarter of 2024, which is a quarterly high since mid-2021 at 5,799 units.  New development, on the other hand, has been a bit more challenging due to the higher return on cost requirements, flat rent growth and a lack of meaningful relief on construction costs. Market valuations for newly constructed assets are near current replacement cost, which …

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ArizonaMarket ReportsRetailWesternWestern Market Reports

Phoenix Retail Landscape Evolves with Market Dynamics

by John Nelson

— By Patrick Dempsey, senior managing director of JLL Capital Markets — The Phoenix retail capital markets environment is showing signs of resilience in the face of current economic conditions. While the market has experienced a period of lower transaction volume, recent drops in interest rates have begun to bridge the gap between buyer and seller expectations, potentially paving the way for increased activity. Notably, Phoenix stands out with impressive positive rent growth, recording the highest rate at 7.4 percent among major metros and Sun Belt markets. Phoenix’s robust employment market, especially in the semiconductor sector, continues to be a major advantage. The city boasts a strong base of major employers, contributing to its ongoing economic vitality.  Investor demand remains concentrated on grocery-anchored properties and premium retail locations, highlighting the enduring value of strategically positioned assets. This trend is especially pronounced in high-growth submarkets. For example, the Southeast Valley is experiencing significant suburban and residential growth, driving the development of new grocery centers to serve the expanding population. Similarly, Northwest Phoenix with areas like Peoria and Glendale are seeing strategic investments from grocers anticipating future population growth.  Looking ahead, there’s increasing optimism for a stabilization of retail capital markets transactions …

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KansasMarket ReportsMidwestMidwest Market ReportsRetail

How to Transform the Retail Landscape in Topeka, Kansas

by Kristin Harlow

By Cody Foster, Advisors Excel Topeka, the capital city of Kansas, has a population of approximately 125,000 people, located in a 12-county region with over 531,000 residents. The region’s population has grown over the past five years and is expected to increase by another 2.1 percent between 2023 and 2028. With an unemployment rate of around 3.5 percent as of mid-2024, the city’s economic outlook remains stable, providing a solid foundation for redeveloping key commercial properties — including the West Ridge Mall, the third-largest indoor shopping center in Kansas at 992,000 square feet. Since it opened in 1988, the West Ridge Mall has been a significant part of the city’s commercial landscape. The site features ample parking and anchors the Wanamaker Road commercial corridor, the region’s most significant retail hub, which garnered $1 billion in retail, grocery and dining spending during the past 12 months.  However, like many malls nationwide, it faces challenges in a rapidly evolving retail environment. Retail trends: following consumer behavior The West Ridge Mall has seen a steady decline in business and occupancy over the last decade. Anchor stores Macy’s and Sears closed in 2012 and 2018, respectively.  Various management companies tried to keep the retail …

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Market ReportsNortheastNortheast Market ReportsRetail

Northern Attitude: Optimism for Retail

by Taylor Williams

By Hayden Spiess Though uncertainty — economic, political and otherwise — has been a theme of 2024, retail real estate markets throughout the Northeast have proven itself reliably strong. Even certain headwinds like high construction costs and minimal quality space to accommodate growth have ultimately helped fuel robust fundamentals throughout the region. Now, brokers, investors and developers in those markets are looking ahead with optimism and faith in persisting tailwinds.   Quality Space Shortage Vacant retail space in Northeast markets has been hard to come by this year, and professionals in the region aren’t expecting that to change anytime soon. The equation, they say, is simple. While retailers’ appetite for expansion has remained healthy, new construction and deliveries have been very limited.  “Almost nothing has been built in the past 10 years,” says Dan Zelson, principal with Charter Realty. “There’s really just very little new product.”  Steve Gillman, partner at The Shopping Center Group (TSCG), notes that while some smaller, single-tenant buildings may still be coming on line, “nobody is building a big strip center with 100,000 square feet.”  “There’s that imbalance of supply and demand: demand by the retailer and lack of supply of space,” adds Daniel Taub, senior …

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