Dallas Commercial Real Estate Market Update: Some Sectors See Shift, But Not All
Published: July 15, 2022
It’s time for a Commercial Market Update, and there is quite a lot to talk about. The market is shifting right now. There’s some relief for some buyers coming from it looks like, but not all sectors are shifting right now. Let’s be clear on that.
I want to talk through the different sectors of multi-family, industrial, retail and office and let you in on more about what’s going on in each of these areas in the the Dallas-Fort Worth Metroplex right now.
Let’s talk about what is going on right now in the Dallas-Fort Worth Commercial Real Estate markets. We will start with multi-family, then dive in to industrial, retail and office space sectors.
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, let’s shift gears to warehouse and distribution. Again, we have been a mecca for warehouse development – but we may be peaking out this next year. That’s the general consensus. We have heard some news from Amazon, for instance, about them pulling back on how much warehouse space they need. North Texas is the number one holder of Amazon space, so there is some validity there for our area. We may see some pullback in warehouse space over the next 24 months. But right now, we still have 70 million warehouse distribution space under construction, and 22.5 million square foot of space leased just this year so far. A lot of that which is under construction may not be looking for tenants, it may be owner-occupied.
So right now, it’s still booming from we can see. We are still the top in the country for warehouse distribution space, and we cannot find enough of it. The really high demand, though, which we are seeing in our business is those looking for spaces that are less than 50,000 square feet. It’s really hard to come by. They are building 70 million square feet right now, but that is typically more large, industrial-type spaces. But you have a lot of mid to small-size company looking for that 25 to 50,000 square feet range, and they just cannot find it anywhere. So Mr. Investor, that’s something to think about when you are developing.
Next, let’s move on to retail. Retail demand in DFW is number one right now. We have definitely recovered out of the pandemic. There has been 6.7 million move-ins since the start of the year. So that’s a huge increase that puts us at the top of the list for the whole country. DFW is where it’s at right now.. I see equity firms coming from all over the place, capital outfits are making their home here because Texas is the future of a lot of real estate development in our nation. It’s really cool to be right in the middle of it, and I am thankful for that. So retail is up. What we are seeing is vacancy rates trending at about 4.8 percent, which is down from 6.2 percent at the peak of the pandemic.
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.
So that’s our commercial market update for this month. If you have any real estate questions on the market or real estate needs, we would love the opportunity to serve you. From commercial buying and selling, to management, if you have properties that need to be managed… Or even residential, we are a five-star company in all areas and divisions. So we would love to serve you for all of your real estate needs. Get in touch if you have any questions or are looking to sell, or looking for a certain kind of property to invest in or lease. We are happy to help you out.
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