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Combination of New, Old Factors Reinforce Appreciation of Industrial Growth Drivers in Texas

Taylor Williams — Wed, 24 Apr 2024 11:49:00 +0000

The more things change, the more they stay the same. More than 150 years after the old French proverb was coined, industrial real estate professionals in Texas who have a penchant for philosophy may well be seeing its application play out in real time. While the industrial market has cooled from 2021 and early 2022, when insatiable demand drove record rent growth, there are still enough positive fundamentals within the space to counteract the likes of inflation, interest rate hikes and geopolitical uncertainty during an election year. Against that backdrop, owners and brokers are frequently reminded of how fortunate they are to be doing business in the Lone Star State. Muchos Gracias Job and population growth are the Letterman guests who need no introduction, as they have always driven expansion and value creation in Texas across all sects of commercial real estate. But as powerful as those drivers are, they’ve been there all along. In recent years, as disruption in debt markets has slowed industrial supply growth and inflation has put pressure on tenants’ costs of occupancy, other macro-level forces have also emerged to buoy the market. Specifically, the impacts of a growing concentration of manufacturing operations in Mexico have…

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Houston Owners, Brokers Dish on Demographic, Economic Drivers

Taylor Williams — Wed, 17 Apr 2024 11:47:00 +0000

Historically, the fortunes of many commercial real estate endeavors in Houston have been tied to the energy sector. But as developers and leasing agents across all major property types know, the market now boasts a much more diverse set of growth drivers, including regional distribution, healthcare, aerospace/defense and financial services. Each of these industries fuels growth in development and absorption of commercial space, not to mention housing. Yet even to the layman, these industries are as different as the commercial structures that house their operations. And taken collectively, the performances of Houston’s commercial properties do not always paint a wholistic picture of the larger economy. That holds especially true in times of larger macroeconomic disruption like the present. Texas Real Estate Business recently reached out to developers/owners, as well as leasing agents/managers who are deeply immersed in the Houston multifamily, industrial, retail, office and mixed-use sectors. By posing a quintet of questions that are — almost — equally applicable to each of these asset classes, we uncover insights on how the five major food groups are performing on a relative basis. Participating in the Q&A are Matt Bronstein, vice president at BHW Capital (multifamily); Robert Clay, president and co-founder of…

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Texas Cities Showcase Downtown Redevelopments

Taylor Williams — Wed, 10 Apr 2024 11:46:00 +0000

Economic development is, in many ways, the business of facilitating growth. Yet in Texas, thanks to an array of business- and development-friendly policies and laws, influxes of jobs, people and new real estate projects to support them sometimes seem to just happen naturally. When this kind of heavy growth is sustained over time, it can lead to less-affordable housing, more cookie-cutter retail scenes and heavier congestion and pressure on local infrastructure. But it is possible for smaller municipalities to embrace job and population growth with new real estate uses and projects in ways that don’t entirely compromise the historic charm or tranquility that many residents of these cities value. Revitalizing a downtown area — bringing in new businesses, adaptively reusing older buildings, creating pedestrian-friendly networks — is a primary means of marrying those objectives. When a successful downtown revitalization program is executed, the benefits tend to have a domino effect. Elevated foot traffic boosts sales at local businesses, increasing asset values over time and stimulating sales of properties. Other investors take note of the viable business plan, and the rest becomes history. But the whole process often starts with the visions of local business owners and the willingness of local…

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Beyond the Hype: How AI Can Drive Success at Texas Retail Centers, Mixed-Use Destinations

Taylor Williams — Mon, 01 Apr 2024 11:52:00 +0000

By J. Wickam Zimmerman, CEO, Outside The Lines Inc. The use of artificial intelligence (AI) technology is growing in retail commerce, where it’s already helping businesses track inventory, forecast demand and suggest new products to consumers. But how does AI figure into retail real estate? Can it be used to enhance engagement and drive success at the properties themselves? Could it help entice shoppers to step away from their online shopping carts and venture out into the real world? The answer is a resounding yes, and we’re already seeing this play out in the Lone Star State. Creating Spaces That Attract & Retain With major Texas markets like Dallas-Fort Worth and San Antonio seeing record-high retail occupancy rates, many property owners are focused on capitalizing on this momentum. To keep foot traffic high and remain competitive with other local developments and online shopping, it’s more important than ever to create unique draws to centers. A key strategy involves creative placemaking and offering experiential destinations that are increasingly bolstered by technology, including AI. To stay ahead, retail centers today must offer an experience that can’t be replicated virtually. This requires having dynamic, interactive onsite features and leveraging technologies that are just…

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InterFace Panel: Infrastructure Development Is Crucial to Industrial Supply Growth in Central Texas

Taylor Williams — Thu, 07 Mar 2024 12:56:00 +0000

By Taylor Williams When it comes to industrial supply growth in Central Texas, the usual suspects — land availability, interest rate movement, time-consuming permitting and approval processes — are all secondary to the need for more infrastructural development to support these projects. Roadways, public transit systems, electrical capacity, sewerage and water services — these are the key ingredients in the recipe for successful industrial development in Central Texas that can sometimes be overlooked or understated in importance. As such, economic development corporations (EDCs) in the area are prioritizing infrastructure development in their work as they help developers add much-needed industrial space to support the area’s burgeoning population. While underlying, efficient infrastructure is critical to all real estate developments and human occupation, it is especially crucial to industrial projects. Large-scale manufacturing facilities — think Tesla in East Austin and Samsung in its northern suburb of Taylor — employ thousands of people. Housing hasn’t caught up to population growth in many of the surrounding communities, necessitating alternate means of commuting. In addition, manufacturing and e-commerce facilities tend to have above-average electrical capacity requirements. Financially, meeting that demand might be made somewhat easier in a state that has a deregulated power grid, but logistically,…

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Texas 2024 Outlook: ‘Dry Powder’ Will Be King, Say Survey Participants

Taylor Williams — Wed, 31 Jan 2024 13:00:00 +0000

By Taylor Williams For the last several years, as COVID-19, inflation and interest rate hikes have chronologically rocked the commercial real estate industry, the term “dry powder” has increasingly factored into investment discussions. While the term generally refers to cash or capital that is parked on the sidelines, 2024 could well be the year for its deployment. There are several basic reasons for endorsing this notion. First, at its December meeting, the Federal Reserve signaled that it would cut rates three times this year, which should theoretically make debt financing more accessible and less expensive — though the extent of that depends on the magnitude of the reductions. Second, as evidenced by the stock market tear following that announcement, investors are itching to deploy capital and will rally around just about any reason to do so, proven or not. Third, there is roughly $537 billion in commercial real estate loans that will mature next year, according to New York City-based Trepp. This staggering volume of impending maturities in a high-interest-rate environment all but assures that some assets will be forced into sales, whether by owners pre-default or lenders post-default. And finally, the 10-year Treasury yield — the benchmark rate against…

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InterFace Panel: Positive Absorption Illustrates Health of Houston Industrial Market, But Sublease Supply Is Worth Monitoring

Taylor Williams — Wed, 24 Jan 2024 13:00:00 +0000

By Taylor Williams The Houston industrial market has generally performed quite well over the past few years, even as a global pandemic, record inflation and hard-hitting interest rate hikes have rocked the commercial real estate industry as a whole. Demand for industrial space has held firm due to rebounding energy prices and expansions in infrastructure and traffic at Port Houston, as well as organic population growth and economic diversification that has elevated the market’s role as a distribution hub. According to data from CBRE, the market has a 6 percent vacancy rate and posted 5.1 million square feet of positive net absorption through the first three quarters of 2023. The volume of new construction was on track to outpace absorption in 2023 when the report was released. But that was not the case in 2021 and 2022, years in which net absorption equaled and exceeded 7 million square feet, respectively. New deliveries totaled approximately 5.6 million and 5.4 million square feet in each of those years, driven not only by the aforementioned factors but also by a temporary uptick in demand for e-commerce services in the wake of the pandemic. In any market or asset class, when absorption exceeds supply…

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Thriving in the Storm: Why Texas Multifamily Markets Will Triumph Despite Projected Challenges

Taylor Williams — Mon, 15 Jan 2024 12:55:00 +0000

By Sandy Schmid, director of acquisitions and development, StarPoint Properties In the fast-paced world of commercial real estate, foresight is as valuable as bricks and mortar. Despite whispers of distress on the horizon for the Lone Star State in 2024, the multifamily real estate market is ablaze with potential. Texas is one of the hottest destinations for developers and investors, and the strategic play is to not just weather the storm, but rather to ride it to success. Recent predictions of multifamily distress starting in the latter half of 2023 have certainly raised eyebrows and fueled speculation. However, predicting the Texas real estate market is akin to forecasting a Wild West shootout — a challenging task given the state’s history of resilience and its ongoing growth. Texas has consistently proven its ability to rebound from economic challenges, and current indicators suggest that the multifamily sector is poised for sustained growth. A Growth Powerhouse One factor supporting the optimistic outlook is the impressive trajectory of Texas’ GDP growth. The state saw a notable increase in its GDP over recent years: 5.7 percent growth in 2021, 2.7 percent in 2022 and 3 percent in the first quarter of 2023 alone. This data compares…

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Strong Fundamentals Buoy DFW Retail Market in the Face of Macroeconomic Headwinds

Taylor Williams — Tue, 09 Jan 2024 13:04:00 +0000

By Ryan Johnson and Tyler Grisham, managing partners and market leaders, SRS Real Estate Partners Those who live and work in Dallas-Fort Worth (DFW) should be grateful for the metroplex’s strong fundamentals. There are a lot of macro-level factors that are out of whack and hurting the commercial real estate business, but there are also a lot of macro factors working in favor of DFW that not many major markets in the United States can claim. Thinking glass half-full, DFW has enjoyed exceptional growth in employment, housing and population over the last decade. According to the U.S. Census Bureau, DFW now boasts nearly 8 million residents, which makes it the nation’s fourth-largest metropolitan area. According to the Dallas Regional Chamber, 14 major companies relocated to North Texas in 2023 — Kelly Moore Paint Co., Inbenta, McAfee Corp., Frontier Communications and West Shore Homes, among others. Thinking glass half-empty, DFW has sky-high construction costs, the highest interest rates in recent memory, highest exit cap rates/lowest valuations in recent memory and just a general market mentality that causes developers, banks and investors to exercise great caution. Active Segments, Trends Given these challenges, it may be surprising that there are retailers that are…

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Amid Capital Markets Freeze, Investors Still Love Central Texas

Taylor Williams — Tue, 21 Nov 2023 13:05:00 +0000

By Taylor Williams The growth story of Central Texas is compelling enough that commercial developers and investors are still aggressively targeting the region, even as costs of doing business hit the roof. In fact, both cities recently cracked the Top 10 on Urban Land Institute’s list of markets to watch in the organization’s Emerging Trends report for 2024. To dispense with the bad and obvious, the region — loosely defined as the swath of land bookended by the Austin and San Antonio metro areas — is not exempt from wide-ranging industry headwinds. Newer trends like working from home, as well as entrenched issues like a shortage of affordable housing and crushing interest rates, impact deals and projects in high-growth markets perhaps even more harshly than their smaller counterparts. This is simply due to the principles of supply and demand. Further, the region faces homegrown challenges stemming from a decade-plus of hyper-accelerated expansion, namely a skyrocketing cost of living and insufficient infrastructure to support demand from tenants and residents. But the fundamentals of job and population growth remain so robust in Central Texas that buyers and builders, particularly within the industrial and multifamily spaces, can still invest and develop in this…

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Paradigm Shift Takes Root in Design, Development of DFW Industrial Projects

Taylor Williams — Wed, 18 Oct 2023 11:53:00 +0000

The effects of sweeping macroeconomic forces in recent years are now manifesting themselves in industrial projects in Dallas-Fort Worth (DFW). And while the market still enjoys healthy fundamentals and tenant demand, the product being delivered now comes with a new look, functionality and set of requirements from end users. To some degree, this paradigm shift in how industrial properties are conceived, designed and constructed stems from major economic factors and trends that are beyond the ability of architects, contractors and developers to control. To start with the obvious, interest rates are now five times what they were 18 months ago. When hikes of that magnitude are enacted so expeditiously, real estate professionals of all walks are impacted, even if it’s in an indirect manner. “Demand for industrial space is there; if developers are building, the rents are probably there to cover those costs,” says Mike Williams, vice president of preconstruction at Dallas-based Talley Riggins Construction Group. “But for developers that are trying to form a team to get enough equity to get a loan — those deals aren’t working anymore with these rates. So paying extra close attention to who your clients are and their funding sources has been the…

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InterFace Panel: With Limited Availability in Texas, Retail Concepts That Exude Authenticity, Local Flavor Have Advantages

Taylor Williams — Tue, 26 Sep 2023 11:40:00 +0000

By Taylor Williams Brick-and-mortar retail has quietly, yet emphatically resurrected itself from the e-commerce- and COVID-induced death knell, bolstered by multiple years of low supply growth that have put a premium on quality space and allowed landlords to zero in on what truly constitutes a winning concept. This notion is inherently subjective and difficult to quantify. But in Dallas-Fort Worth, retail owners and operators say that authenticity — as defined by uniqueness of the offerings and adherence to and reflection of local culture — is paramount to success. From the presentation and packaging of products and services to utilization of local architectural styles to creating a certain shopping or dining ambiance, the ability to capture the authenticity of the market is crucial. Consumers and landlords can afford to be choosy, and they won’t waste time at stores, restaurants or entertainment venues that feel cookie-cutter, phony or out-of-place. But retail landlords can ill-afford to do deals with tenants that simply look the part but lack the financial ability to pay rents, which are growing in urban locations where availability of space remains tight. Monetary due diligence remains critical, but as often as not, there is considerable overlap between the financial solvency…

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Office-to-Multifamily Conversions Are Reshaping Downtown Dallas

Taylor Williams — Wed, 13 Sep 2023 11:40:00 +0000

By Ryan Kimura, senior vice president of strategic partnerships, Premier The changing landscape of work and the future of the office remains in flux, leading to a reduced demand for office space in major metropolitan areas throughout the country. This shift has rendered many office buildings underutilized and obsolete, prompting developers and investors to seek alternative uses for these structures. Simultaneously, urbanization continues to grow, fueling the demand for housing and a need for innovative multifamily solutions. Office-to-multifamily conversions provide an answer to both challenges, repurposing office spaces into much-needed residential units while allowing investors to capitalize on demand. This perfect storm of reduced office demand, increased housing needs and favorable regulatory conditions has driven the popularity of office-to-multifamily conversions, positioning them as a sustainable strategy for urban development. These conversions began to surge in popular metro areas during the height of the pandemic as uncertainty surrounded the return to the workplace. Fast forward three years later and office conversions are still booming — especially in the Dallas market. The region, which has witnessed some of the largest population increase in the country over the past five years, has also had a double-digit office vacancy rate in its downtown area…

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How Retail Became Texas’ Strongest Commercial Real Estate Category

Taylor Williams — Wed, 09 Aug 2023 11:51:00 +0000

By Herb Weitzman, executive chairman, Weitzman The major Texas metro areas of Austin, Dallas-Fort Worth, Houston and San Antonio all share one thing in common: Their retail markets are posting balances of supply and demand that outpace every other major commercial real estate category. This milestone was not achieved without overcoming significant obstacles. The major Texas retail markets have survived decades of back-to-back challenges, including major market disruptors like e-commerce, the 2008 Financial Crisis that knocked out several major chains and 2020’s pandemic-induced shutdowns. Each of these significant disruptions and challenges first resulted in store closings and higher vacancy rates. But retail operators as well as commercial brokers and landlords all learned from the setbacks by embracing the lessons of these disruptions to understand how to creatively bounce back stronger. As a result of the market’s careful pivoting, the retail markets in Texas’ major metros have right-sized and are reporting a yearslong trend of balance in supply and demand. To illustrate this point, we used the mid-year reports from CoStar Group on the non-retail CRE types. We compared retail vacancy rates in the four Texas markets to CoStar’s mid-year rates for the industrial, office and multifamily spaces in each of…

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Unleashing the Industrial Real Estate Surge: Texas Takes the Lead

Taylor Williams — Wed, 26 Jul 2023 11:48:00 +0000

By Ron Gilbreath, managing director of asset & property management, Westmount Realty Capital It’s no trade secret that global lockdowns during the pandemic had a significant and lasting impact on supply chains worldwide. EY’s 2023 poll revealed that 72 percent of senior-level supply chain executives experienced negative impacts on their businesses due to the pandemic, resulting in the emergence of a concentrated focus on supply chain visibility. The crucial point to acknowledge during this continued disruption is that these impacts are closely tied to the just-in-time (JIT) inventory management system. As a result of these challenges, businesses are actively reassessing their distribution network strategies, leading to a surge in demand for industrial warehouse space. With the necessity to maintain greater inventory levels, companies are re-evaluating their warehouse space requirements and distribution setups to mitigate the risk of future supply shortages. The lockdowns disrupted two essential elements of JIT strategy: steady production and supplier reliability. Suppliers forced to comply with government lockdowns incurred major disruptions across various business lines due to the challenge of maintaining consistent production. This is a key component of JIT delivery that relies on having materials physically present during the production process. When these materials are unavailable,…

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‘Suburban Industrial:’ What It Means and Why McKinney, Texas, Is Reaping All Its Benefits

Taylor Williams — Wed, 19 Jul 2023 11:44:00 +0000

By Ben Wallace, SIOR, vice president, Colliers Over the past decade, “suburban industrial” buildings have become more critical than ever. A suburban industrial building can be defined as one that is located within the suburbs of a major metroplex and designed for small- to medium-size users with above-average allotments of office/showroom space to accommodate service and light distribution uses. The typical building and infrastructure designs naturally limit heavy truck traffic and achieve higher rental rates, deterring heavy distribution and manufacturing users from locating there. With macro-level shifts in how people shop for and acquire goods and services, the need for suburban industrial buildings that are located near consumers has become increasingly important. Most cities have done an excellent job of regulating and altering development standards for these assets to meet this need while being careful to avoid creating rundown industrial areas in their communities. These cities have achieved this goal by elevating development standards to feature clean concrete exterior façades as well as the screening of dock loading areas and attractive glass entrances. The reason that many of these items are important is that the vast majority of these suburban industrial developments are not appropriately zoned when developers come to…

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Multifamily Sales Volume Slips Across Texas

Taylor Williams — Wed, 28 Jun 2023 12:16:00 +0000

By Taylor Williams Multifamily investment sales activity has been muted across major Texas markets during the first half of 2023, underscoring the unfortunate reality that even the most coveted asset classes are not immune to severe macroeconomic headwinds. Much like a year ago, the combined effects of stubborn inflation and corresponding interest rate hikes have wrought visibly negative changes to the world of multifamily investment sales. But in summer 2022, deals were still getting done at a decent clip; price disparities and depreciation were the most significant and obvious impediments to deal velocity. Today, buyers and sellers are more closely aligned on market realities as relates to price points, but many are simply not motivated to transact — at least in the short term. According to data from RealPage, in the first quarter of 2023, there were 337 multifamily transactions within the Dallas-Plano-Irving triangle, down from 510 in the first quarter of 2022. The greater Houston area saw 266 deals executed in the first quarter this year, a decline from 410 during that period in 2022, while the Austin market’s total number of transaction fell from 191 to 123 quarter-over-quarter. Multifamily sales prices responded differently to reduced deal volume from…

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Backed by Healthy Demand, Industrial Developers in Texas Can Pace New Projects

Taylor Williams — Tue, 04 Apr 2023 11:44:00 +0000

By Taylor Williams The current industrial development landscape in Texas is a true testament to the awesome power of demand — and of interest rate hikes. From El Paso to Houston, industrial users of all sizes and across all industries continue to demand new or expanded spaces to accommodate their ever-growing warehousing, distribution and manufacturing needs. E-commerce, nearshoring, COVID-19 — name your impetus — they’ve all contributed to a feverish pace of industrial development and absorption in recent years. According to fourth-quarter 2022 data from CBRE, Dallas-Fort Worth (DFW) saw an annual supply gain of about 36.1 million square feet in 2022 while posting positive net absorption of 36.5 million square feet. Third-party logistics users drove much of the new leasing activity, which contributed to a 4.6 percent vacancy rate at the end of the year. The market has now posted consecutive years of sub-5-percent vacancy. Fittingly, there remains more than 75 million square feet of product under construction throughout the metroplex. In Houston, developers delivered approximately 18.8 million square feet of new industrial space in 2022, per CBRE. Yet the market posted more than 30 million square feet of positive absorption over the course of last year, and the…

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Why Commercial Real Estate Employment is Thriving in Texas

Taylor Williams — Tue, 28 Feb 2023 12:41:41 +0000

By Kent Elliott, principal, and Chase Fryhover, director, RETS Associates While December’s national jobs report painted an optimistic picture of the employment landscape, some sources have noted that workers in commercial real estate are leaving the industry. Yet although some national brokerage firms may be trimming the fat to cut costs in light of recent economic uncertainty, this trend does not seem to apply to Texas-based commercial real estate companies. In fact, according to Estateserve, with the Texas office market booming, vacancy rates dropping and rents rising, “Texas’ commercial real estate is experiencing a resurgence.” As a national executive search firm that has served the industry for more than two decades, RETS Associates has a seasoned perspective on job markets throughout the country. Here are the trends we are noticing throughout the industry in Texas and why we believe the market is poised for ongoing strength and stability. Continued In-Migration Texas is the ninth-largest economy in the world, as well as one of the leading markets in the country in job and economic growth. The Dallas-Fort Worth (DFW) area in particular, the fourth-largest MSA in the country, led the country in population growth in March 2022 and in post-pandemic job…

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Skanska Tops Out 28-Story Office Building in Downtown Houston

Taylor Williams — Thu, 23 Feb 2023 15:09:18 +0000

HOUSTON — International developer Skanska has topped out 1550 on the Green, a 28-story, 375,000-square-foot office building located within the Discovery Green area in downtown Houston. Designed by BIG Bjarke Ingels Group, the building will include 7,000 square feet of ground-floor retail space, and tenants will have access to a fitness center and outdoor terraces with event spaces. CBRE is marketing the office space for lease, while SHOP Cos. is leading the lease-up of the retail component. The development team expects to begin welcoming tenants to the building before the end of the year.

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