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

Market Reports Office Texas Texas Market Reports

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

Market Reports Texas Texas Market Reports

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

Market Reports Office Texas Texas Market Reports

Energy Users Become Developers, Buyers in Midland Office Market

by Taylor Williams August 3, 2018

In early 2017, real estate professionals in West Texas began to see a noticeable boost in demand for industrial properties across the Permian Basin. In keeping with economic tradition, demand for space in the Midland office market is now catching up to the industrial sector after a 12- to 18-month lag period. The beginning of 2018 is when Midland’s office market really began to gain steam, riding not only a surge in oil prices but also a 2.4 percent unemployment rate, which is more than a full percentage point below both the state and national averages. Several larger users entered the market at this time while some existing tenants, including Cimarex and Southwest Royalties, began looking for larger spaces. As of May 2018, the office occupancy rate had reached approximately 92 percent after wavering between 80 and 85 percent for much of the oil downturn. Average rents for office space are currently standing at about $22 per square foot for Class A space and $19 per square foot for Class B space. With approximately 6 million square feet of product, Midland’s office market is the unquestionable hub of the downstream side of the West Texas energy business. Any company with …

August 3, 2018

Market Reports Multifamily Texas Texas Market Reports

An Investor’s Guide to Financing Multifamily Assets in Lubbock, West Texas

by Taylor Williams July 27, 2018

Growing up in Lubbock in the 1990s, cotton fields were everywhere. No growth existed in the southwest part of town, and few new apartments were built. Today those same cotton fields are housing developments; the southwest part of town is filled with high-quality retail and more than 2,000 apartment units have been delivered since 2015. Lubbock is thriving behind its sub-3 percent unemployment rate, strong agricultural sector, university with 40,000 students and a very strong healthcare sector. Available capital and financing options are plentiful. Many have taken notice, however, which has affected rent growth and vacancy in the market. Economic Overview One of the biggest misconceptions of the Lubbock economy involves the role of the oil and gas industry. A myriad of investors often incorrectly tie Lubbock with Midland/Odessa in this regard, ascribing to Lubbock the historical swings of an energy-based economy. But the comparison is pure apples to oranges. Although energy does have an impact, Lubbock boasts more economic diversity than many of its West Texas neighbors. A direct result of Lubbock’s diversity is the unemployment rate, which is one of the lowest in the state at 2.7 percent. This strong performance in the job market stems from an …

July 27, 2018

Market Reports Retail Texas Texas Market Reports

Rising Oil Prices Seep Into Midland-Odessa Retail Development, Sales

by Taylor Williams July 20, 2018

The Midland-Odessa retail market continues to get stronger due to the rise in oil prices over the last year. West Texas intermediate crude oil prices have risen from around $46 per barrel in June 2017 to more than $72 per barrel as of June 27, 2018. According to a recent survey from the Dallas branch of the Federal Reserve, new technology is allowing energy companies to break even at $25 per barrel. In addition, the Midland Development Corp. (MDC) notes that the combined Midland-Odessa unemployment rate is down to 2.8 percent, which is the lowest on record. The rise in prices, combined with this scaling of the oil-driven economy, is contributing to local consumers having more disposable income. In turn, spending at restaurants, hotels and retail stores in the Midland-Odessa area is up across the board. Housing Connects The Dots Due to the rise in oil prices and strong economic growth, demand for more housing developments in the Midland-Odessa market is strong and getting stronger. And wherever there’s a boom in housing, a new wave of retail development is likely to follow. According to the MDC, roughly 500 single-family building permits had been issued as of March, the highest first-quarter …

July 20, 2018

Industrial Market Reports Texas Texas Market Reports

Building Size Matters in Amarillo Industrial Market

by Taylor Williams July 13, 2018

Amarillo’s industrial market is truly a tale of two sectors, as some form of that expression goes, and the key number is 50,000 square feet. The occupancy rate for industrial properties in the sub-50,000-square-foot range in Amarillo remains very high, with few properties of this size sitting on the market for extended amounts of time. With such high occupancy rates, several new developments have recently sprung up. Those with both large footprints and divisible floor plans to meet the needs of smaller tenants tend to be most successful in terms of leasing velocity. In addition, developers of this product type are seeing its success and gravitating to Amarillo with spec projects. This sector of the industrial market should remain profitable for developers unless construction costs increase at a greater pace than rents can justify. The lull lies in existing properties that measure more than 50,000 square feet. In a smaller market like Amarillo, properties of this size sitting empty can be an ominous sign, and a few in particular have really come to symbolize concerns about sales of assets of this magnitude. Such properties include a 140,208-square-foot manufacturing facility previously occupied by chemicals manufacturer Techspray; a 115,000-square-foot facility formerly occupied …

July 13, 2018

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