Market Reports

Same Drivers Move Austin, San Antonio Retail Markets at Different Pace

by Taylor Williams October 12, 2018

A mere 80 miles separates Austin and San Antonio, the anchors of the growing Interstate 35 corridor. The two cities have some fundamental cultural differences but share certain economic drivers that have produced healthy retail real estate markets in both metros, albeit with varied results. The most basic economic drivers common to both metro areas are population and employment growth. Like other Texas cities, the Austin and San Antonio metro areas continue to experience a steady stream of new residents and jobs. Although San Antonio often takes a backseat to Austin in various rankings, the Alamo City topped this year’s national list for largest raw numeric growth in population among all U.S. cities of 50,000 or more, according to the U.S. Census Bureau. Austin landed at No. 12 in this category. However, Forbes ranks Austin second among America’s Best Cities for Jobs while San Antonio lags at No. 13. Joined at the Hip Because both cities and the small towns that surround them are growing at phenomenal paces, central Texas is starting to be identified in terms of Austin and San Antonio, not Austin vs. San Antonio. And although this concept has been talked about for years, retail development along …

October 12, 2018

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Industrial Market Reports Texas Texas Market Reports

Constraints in Austin Push Distribution South, Bolstering San Antonio’s Market

by Taylor Williams October 5, 2018

Less than 100 miles along Interstate 35 separates downtown Austin from downtown San Antonio. But thanks to strong job and population growth throughout the region, that short stretch is becoming home to two industrial markets that occupy distinctively different, yet thriving, niches in the local economy. The CliffsNotes version of this story is that Austin is trending toward servicing smaller, local tenants with ties to the tech sector, while San Antonio is moving toward being a regional distribution market for larger, nationally known users. Both markets are tight: the vacancy rate for both Austin and San Antonio is between 5 and 6 percent and both are seeing very healthy tenant demand and absorption of many current and planned developments. But to understand how the markets have come to function so differently from one another, we must consider the key driving factors in each metro. Austin: Access & Availability Developing new industrial space in Austin — an industrial market with about 79 million square feet of product, according to JLL’s research — is rife with challenges. The entitlement and zoning processes are exceptionally time-consuming, and most infill land sites are priced at levels that make new construction economically implausible. But the …

October 5, 2018

Market Reports Office Texas Texas Market Reports

Austin’s Office Market Goes Boomtown, San Antonio’s Continues Impressive Growth

by Taylor Williams September 28, 2018

Compared to Houston and Dallas, the office markets of Austin and San Antonio have a hard time competing on sheer size alone. However, these two central Texas cities are undergoing rapid changes that are leaving longtime residents amazed at the constantly morphing skylines. Both metros boast strong office markets that are growing with the entire Texas economy. But how do they match up in a head-to-head comparison? Basic Numbers At approximately 50 million square feet of office space, Austin holds a size advantage over San Antonio, which has about 30 million square feet. As of the second quarter 2018, annual full-service average office rents in Austin are also substantially higher at $36.54 per square foot compared to San Antonio’s $22.05 per square foot. Both markets have seen steady year-over-year increases in rates as the economy has recovered from the Great Recession. The familiar real estate mantra, “Location! Location! Location!” plays a big role in office rates and affordability in each market. Austin’s central business district (CBD) continues to draw major employers, including Google and Indeed, which combined occupy about 667,000 square feet of office space. This downtown migration has pushed vacancy in the CBD down to 10.1 percent, with rents …

September 28, 2018

Market Reports Multifamily Texas Texas Market Reports

Value-Add Opens Doors For Multifamily Buyers

by Taylor Williams September 21, 2018

Capital sources of all types see opportunity in the apartment sectors of core Texas markets, which regularly lead the nation in employment and population gains. With so many investors trying to park money in this space, sales prices have risen, cap rates for multifamily properties in major markets have compressed and lenders are competing among themselves to finance acquisitions. When lenders compete, borrowers win. For multifamily lending in sizable markets, value-add borrowers are seeing tighter spreads on their loans, a factor of both more lenders entering the space and the Federal Reserve’s decision to raise short-term interest rates. But rising land and construction costs have also contributed to skyrocketing prices on newly built multifamily product, which has weeded out some potential investors. Rather than shun the market entirely, however, many of these buyers are targeting Class B and C assets for value-add plays that will attract residents who can afford higher rents. In Texas, these kinds of deals are being executed at record paces. “The transaction velocity for value-add multifamily deals has been at historical highs in this cycle,” says Warren Hitchcock, senior vice president in NorthMarq Capital’s Houston office. “The significant amount of capital flowing into the space, combined …

September 21, 2018

Market Reports Multifamily Texas Texas Market Reports

Texas Summer Heat Is No Match for DFW Multifamily Market

by Taylor Williams September 14, 2018

To say the multifamily investment market in Dallas-Fort Worth (DFW) is healthy would be an understatement. With nearly 36,000 units across 183 properties sold in the first half of 2018, according to Real Capital Analytics, a more accurate assessment would be that the sector is — figuratively — on fire. Investor demand for workforce housing remains at an all-time high. With strong economic fundamentals, buyers remain bullish on the DFW multifamily market. Historically low interest rates have attributed to cap rate compression as buyers continue to search for value-add opportunities. While cap rates remain compressed, the yields are still very attractive when compared to alternative investment options. With listings averaging more than 125 confidentiality agreements, 20 tours and 15 offers, the competition has become intense. Winning a deal in today’s market takes more than a strong offer — it takes a good reputation, determination and aggression. Buyer Strategy Buyers can differentiate themselves and establish a competitive advantage by having the equity partner, lender, contractors and management company involved in the transaction prior to the initial offer. Sellers have grown accustomed to tight timelines, limited contingencies and significant non-refundable earnest money at contract execution. In this competitive of a market, sellers …

September 14, 2018

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Class A Office Buildings in North Texas Evolve With New Tech

by Taylor Williams September 7, 2018

Over the last decade, Dallas-Fort Worth (DFW) has been consistently recognized as one of the fastest-growing metropolitan areas in the nation, and there are no immediate signs that the growth is stagnating. Particularly in the last several years, DFW has experienced a wave of corporate relocations and expansions from a wide variety of industries. This activity has brought an assortment of valuable economic opportunities to the metroplex, resulting in a robust construction pipeline. This new product is focused on meeting the strong demand for highly amenitized, future-proofed Class A office space and embracing the high-tech connectivity that helps guard against obsolescence. Fortune 500 and other prominent companies continue to eye DFW as a top location. These users expect buildings to include not only standard amenities like fitness centers and conference rooms, but also access to the latest technology and seamless connectivity. How We Got Here In the 1980s, a major commercial construction boom in North Texas set the benchmark for Class A office buildings, which were traditionally developed without modern technology in mind. Buildings such as The Crescent, Bank of America Plaza and Fountain Place were the gold standard for office properties and served as benchmarks for quality for much …

September 7, 2018

Market Reports Retail Texas Texas Market Reports

Out-of-State Investors Eye Surging Dallas Retail Market

by Taylor Williams August 31, 2018

The Dallas retail market has been on a historic run over the last five years. Dallas is attracting significant attention from foreign and domestic retail investors alike for several reasons. Cap rates continue to compress, big box spaces are experiencing steady absorption, occupancy is at an all-time high of 94.6 percent, unemployment is at a historic low of 3.7 percent, population growth is holding steady and residential development remains robust. The Dallas-Fort Worth (DFW) MSA recently ranked second in the Americas for real estate investor interest, according to a recent poll conducted by CBRE. In particular, there has been a strong increase in demand for retail properties from California buyers. Many of these investors are used to paying 4 to 5 percent cap rates. So when these California buyers have the opportunity to invest in a market showing stronger signs of growth than their local regions, they jump at the chance. According to CoStar Group, over the last 18 months, the average cap rate for a Dallas retail asset purchased by a California buyer was 6.1 percent. In contrast, the average for a Texas-based buyer was 7 percent. This statistic clearly shows that private retail investors based in California are …

August 31, 2018

Industrial Market Reports Texas Texas Market Reports

Building Boom Forces Dallas Industrial Developers to Mix it Up

by Taylor Williams August 24, 2018

As industrial development ramps up across the country in an effort to keep pace with demand, developers are eyeing Dallas-Fort Worth (DFW) for new projects, forcing existing players to get more creative with their site selections and design elements. The DFW metroplex has experienced millions of square feet of industrial development over the past year. The market currently has more than 27.9 million square feet of space under construction. If DFW continues to expand at this pace, year-over-year industrial growth will outpace that of 2017. As infill sites become more scarce, developers revisit land that was once looked over for previous projects. Some of these sites include closed landfills, shuttered golf courses and tracts that may have had unusual hurdles such as drainage, utility or environmental issues. Going South Of all the submarkets that comprise the metroplex, South Dallas enjoys the largest share of development. Over 7 million square feet of product is currently under construction in this submarket, which may puzzle those familiar with the area, as it has historically been less attractive to smaller, more regional tenants. Location is partly to blame for this pattern. South Dallas can be quite a drive for local business owners. In addition, …

August 24, 2018

Industrial Market Reports Self-Storage Texas Texas Market Reports

Oversupply, Taxes Choke Self-Storage Growth

by Taylor Williams August 17, 2018

Self-storage properties have had a pretty good run in Texas over the last several years. Surging population growth has brought more material possessions into the state, boosting absorption of existing space. In addition, ample land for development has enabled builders to bring self-storage — a submarket-specific business — to new, underserved communities. The investment side of the business has flourished as well. A capital-rich environment has sustained a healthy pace of development and price escalation has kept cap rates low, incentivizing many owners to market their properties for sale. The building boom is still running hot. According to Tennessee-based research firm STR, as of June 2018, there were more than 300 self-storage facilities in the development pipeline in Texas. In the 12 months leading up to that point, 72 new facilities totaling almost 7 million square feet came on line. In addition, about 130 new properties are slated to open by June 2019, adding more than 9 million square feet, or 5.7 percent of the existing inventory. And those figures only encompass the seven biggest markets in Texas. According to The Houston Chronicle, the Dallas, Houston, Austin and San Antonio markets all feature about 8 square feet of storage space …

August 17, 2018

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Borrowers Scramble to Lock In Rates

by Taylor Williams August 10, 2018

The Federal Reserve met during the second week of June, and as expected, the nation’s central bank opted to raise short-term interest rates for the second time this year. In short order, this means that borrowing costs for banks are going up, which means that increased borrowing costs for consumers will follow close behind. At least one more rate hike is anticipated to occur before year’s end as part of the Fed’s stated goal of increasing the federal funds rate from its current range of 1.75 percent to 2 percent to 2.5 percent by year’s end. In addition, the Fed has pledged to continue its rate hikes through 2019 and potentially into 2020 as it pursues a tighter monetary policy. The capital markets behind commercial real estate in Texas have long seen these rate hikes coming — necessary measures to choke off inflation brought on by tax cuts, a ballooning stock market, an 18-year low unemployment rate and near-3-percent annual growth in GDP (2.9 percent in the first quarter). Some borrowers have been able to refinance existing debt and lock in favorable rates in advance of the Fed’s hikes. Those who didn’t, perhaps because their loans were too far removed …

August 10, 2018

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