We are in a fast-shifting market right now. But what is fundamentally different here is jobs, jobs, jobs.
Thankfully we are in the Dallas-Fort Worth Metroplex, and job growth is not slowing down. It is increasing.
The unemployment rate in the area went from 4.4 percent this time last year to 3.4 percent now.
On top of that, from one year ago, jobs grew at almost 8 percent. Just to give you a perspective, a healthy job market is around 2 to 3 percent growth.
To be growing at 8 percent hedges us from some catastrophe in commercial real estate.
And, we are in the right place at the right time, and long-term investment here in commercial real estate in the D-FW Metroplex is truly the place to be.
That’s why all these hedge funds from New York are putting offices here — because capital is needed and development is coming our way with migration from all over the country of people and businesses.
From September of last year, we added 298,000 jobs.
Think about how many people that is, how many neighborhoods that is, how many convenience stores are needed to service that number of people, and just the commerce required for those jobs when they are filled.
Right now, we are in a slowing market, but we’re not in a recession in commercial real estate like I would say we are with residential real estate.
The number of transactions in residential are negative by 20 percent. We are still seeing growth in commercial real estate. We are up 10 percent year over year. And there was 32 billion dollars transacted in the Dallas area, which is still phenomenal. That’s for the first nine months of the year.
But if you think about where we were in the first quarter, we were seeing appreciation up 30 percent year over year. So now being at 10 percent, that tells you how fast things are shifting and flattening out in the number of transactions and growth in transactions.
So, we’re in a shifting market and that is going to happen. Ultimately, it needs to happen for long-term growth. But transactions nationwide were down 21 percent, so that gives you a good perspective of how jobs and migration here are insulating us from this high interest rate environment.
We went from 3 percent on mortgage rates to 7 percent now in residential real estate. And we’re seeing around that, depending on the asset, on commercial financing as well.
So, dozens of purchases of properties are still going on, but we are seeing monthly declines, month after month.
I wanted to give you more of a general update today to show you what we are seeing so you have the bigger picture view.
From a seller standpoint, we are seeing more people come to the table because they are realizing that the window may be narrowing to get their property sold. We are seeing inventory build, and price corrections and decreases coming in.
But price appreciation year over year is still up, but we are seeing a slowdown from that 30 to 50 percent appreciation to a more normalized 10 to 20 percent price appreciation year over year.
Then, on the buy side, we are seeing buyers waiting, not budging, and ultimately saying, “Mr. Seller, we can’t give you that.”
We are seeing significantly lower offers come in… But buyers and sellers in general in commercial real estate right now are in a standoff of sorts with sellers still wanting the 30 percent price appreciation and buyers wanting a correction.
But the correction is not coming in a big way for the buyer. And for the seller, 30 percent price appreciation just is not there anymore. So ultimately, the seller will have to come down some on the price to get their property under contract and sold.
What I am seeing on properties that are actually going under contract and selling is sellers who are happy with a 5 to 10 percent appreciation over last year. Those sellers are getting multiple offers and getting their properties under contract. If you’re looking to sell right now, the best advice I have is to price it right. There is fundamental demand in this D-FW market that is not going anywhere.
And again, the reason for that is due to jobs.
All these people coming here and the businesses coming here need commerce and commercial real estate long-term. So, this is a good long-term investment.
I do feel like over the next six months, there will be better buying opportunities than a year from now.
Real estate is feeling the interest rate environment at the moment. When the rest of the world starts to feel it, and we go into a full recession a year from now like is predicted, then interest rates will go down in that environment and prices will go back up.
So there really is an opportunity here for buyers over the next several months.
In conclusion, because of jobs, we are hedged here. You are hedged here as an investor and in the best market in the country — and the world even — right here in Dallas-Fort Worth.
With that being said, if we can help you here at M&D Commercial, we would love the opportunity to do so.
We can also help you manage your properties and maximize your investment with our commercial property management division.
We look forward to the opportunity to serve you.
Leave your details, select your interest(s), and we’ll get you more information on how we can help.