DFW Commercial Real Estate Market Update Aug. 2022

Dallas-Fort Worth Sees A Record-Breaking First Half of 2022. But Is a Slowdown On The Horizon?

We are beginning to see signs of a slowdown as borrowing costs have increased significantly with this rising interest rate environment. Shifts beginning to happen, where listings are sitting longer and fewer bidders are coming to the table, if any bidders at all. We are definitely in a market that’s shifting, but how much will it shift? That is the question.

We are in an area in Dallas-Fort Worth where people are flocking here from all over the country. In fact, we are ranked number one in all kinds of commercial investment metrics.

COMMERCIAL BUILDING STARTS & INVESTMENT IN DALLAS-FORT WORTH

Breaking into the numbers now, D-FW commercial building starts soared 70 percent in the first half of 2022. That’s new construction and development. And what is really mind blowing is this… Typically when interest rates begin to affect the market, we see a slowdown. 

I think we will, we’ll see some moderation. But it hasn’t happened yet. We do expect to see it towards the end of this year. Residential is already seeing it. Commercial is a longer lag because of the deal cycle and what it takes to get to the development stage.

D-FW was the top investment market in the country, second to none, including New York City for the first half of the year. Pre-COVID, I really never thought we would see this – us ahead of NYC. But we have people coming here, building headquarters here, the investment is coming here. It’s happening. 

The pendulum has shifted, and it’s not going to stop. People understand the value in raising their kids here in Texas, they enjoy the tax environment, the business-friendly environment. So all of this is why we are seeing headquarter after headquarter coming to the North Texas area.

A total of 22.9 billion was invested into North Texas real estate for the first half of the year. Again, that is up 50 percent year over year. And last year was a booming year as well.

MULTI-FAMILY

In the first half of 2022, investors snapped up more than 12 billion in apartments. So multi-family is booming. Why? Because people are moving here. 

There was a net absorption of 23,900 units leased the first half of the year.

Additionally, we ranked 3rd for construction starts in residential and commercial recently. 

More than 17,000 new apartments have been added to the North Texas market and that is mind blowing. Think about 17,000 new apartments in the first half of the year. If you think of even just 1,000 families – that’s a lot. But think of 17,000. A typical subdivision has 300 homes in it… Just try to wrap your head around it. That is a ton of new apartments added. 

Then, we have a 4 percent vacancy rate. So that’s why we are seeing so much of this. In fact, there are a total of 56,000 units still under construction right now.

We are in the right place at the right time with what we’re dealing with in this current market. Not just people moving here, but we are seeing multi-family investment increase the way it has because of the rent increases here.

Let’s talk rent increase numbers for July – Frisco was up 12.76 percent, at $2,046 dollars, Irving was up 28 percent to $1,889 dollars, Plano was flat at $1,845, Dallas was up 16 percent, at $1804, Fort Worth was up 9 percent to $1,296 dollars, and Arlington was up 15 percent nearly to $1,174 dollars per month. So, when you’re increasing rates year over year 15 to 20 percent, every investor in town wants to be a part of that.

OFFICE

DFW ranks 4th nationally for office right now. 

We do have a glut of sublease space, with companies like Uber on 75 releasing space. 

But there is still a lot of construction, mostly in the suburbs

That’s a trend we are also seeing more of, more businesses moving out of the inner part of the metroplex post-COVID.

INDUSTRIAL

North Texas has recorded 4 billion in industrial building sales so far this year. 

Again, in industrial and multi-family, we are number one in the country.  We have just become a mecca for technology parks, logistics, data centers — Amazon has, I think, 10 to 12 million square feet here. 

We are a major logistics hub here in North Texas.

Dallas-Fort Worth Ranks No. 1 For Industrial Real Estate Investment

FINAL THOUGHTS

To summarize this general market for the first half of the year, it was amazing and record breaking

We do expect, in consensus from all types of analysts, a slowdown going into the end of the year.  Our firm on a micro-level has seen probably 20 percent of commercial contracts terminate this year because of the interest rates. It just affects the economics.

So the CAP rate will have to come up, which is another way of saying prices need to come down, for the market to absorb the higher interest rates. So that’s why we expect a little bit of a slowdown.

Into the end of the year, we expect to see some good opportunities come to the table. This is because someone may be in an ARM, an adjustable-rate mortgage, that went too high and they need to unload the property. We aren’t seeing “good opportunities” right now. But what we are seeing is properties sit longer, so it’s just a matter of time before the CAP rates adjust upwards for you, the investor, to be able to pick off some deals towards the end of the year.  

But long-term, we don’t see a big correction in D-FW both because of our job market and the general demand we have here.

So the pendulum has shifted. North Texas and Texas a whole is full of great opportunities right now. And I am very thankful to be in this area as a real estate company.

On that note, please let us know if you need any assistance with commercial investment

We also have top-tier, five-star property management services. 

We would love the opportunity to serve you. Please reach out if you have any questions.