DALLAS COMMERCIAL REAL ESTATE MARKET UPDATE

Starting with multi-family, right now we have 4 percent vacancy rates in the DFW Metroplex, which has stimulated a ton of multi-family development. It has not slowed down at all. We have more people than we can house coming into this area. It has created new ventures in fact, such as DR Horton’s 8-9 communities coming into the region, which are just single-family homes that are entire leasing communities. They do nothing but lease these homes, and they are managed like multi-family. 

We have one of those communities we are managing as well in our property management division with over 300 homes in Terrell, Texas – the Woodlands Terrell community. We are in the leasing phase right now and have more applications than even homes being delivered. It is just unbelievable, this continued leasing demand. 

Rents are up 17.4 percent year over year. It just keeps helping the economics, even with higher land prices. There are 56,000 units currently under construction through this mid-year time – that’s an additional 15,000 over last year’s total. Just think about that, think about even 1,000 units. That’s 1,000 families. And think about how much economy activity that drives, much less 56,000 families – and only 4 percent vacancy rates. It’s just an unreal demand for housing in the area. The shift in the interest rates has not hurt multi-family at all. In fact, it may even drive some homebuyers that were on the sidelines that couldn’t get into a home because perhaps the interest rates jumped up when their new build was complete and they cannot afford it any longer, so now they have to go and rent. 

Personally, I do not see any relief there for rents with the demand of multi-family for this area anytime soon. And that’s the consensus of everybody. Just watch these leasing communities, though. It’s the newest thing, and you’ll get to see some of the stuff we have as a management firm managing one of these. It really is just like multi-family, and you maintain the front yard so it keeps it nice, it has a community center, dog park, some of them may have pools. It’s just like apartment renting practically. The only thing the tenant handles is the backyard. It is an interesting concept that has just continued to pick up pace. I think it’s genius. And it’s already working on the one we are managing.

Next, office space. Office is still struggling, and one of the main hurdles for office is the sub-lease availability in heavy urban areas like downtown Dallas. In that area, for instance, there is 10 million square feet of sub-lease space available. Sub-lease space, to explain it, is when for instance somebody is in a lease, like Uber was a big one, and they realize they don’t need that much space any longer because the pandemic has changed their business model. So all of that square footage, that 10 million square feet, is now available in our area. And net absorption for the first half of the year was only two million square feet. Now, two million is a great net absorption, but it’s being suppressed by all of the available sub-lease space. 

So what happens then is that the market is still soft on rents and vacancy rates. But, I really say the urban area, the downtown areas and surrounding areas there, because in the outer suburbs on the other hand, we are not seeing that as much. A lot of businesses, small businesses especially, are getting out of the downtown areas. I would say up to 20,000 square feet sized businesses. Really, in Rockwall County, we need that 10 to 30,000 square feet and have none available. And there are really a lot of businesses looking for that size of space.