Newest Data & Forecasts for Dallas-Fort Worth Commercial Real Estate Sector

Dallas-Fort Worth led the country with $13.2 billion in commercial real estate investment in the first nine months of 2023, according to a report from MSCI Inc. This was in large part due to apartment sales in the region. On the other hand, Dallas-Fort Worth is home to $1.4 billion in distressed properties and $8.8 billion in troubled deals, which presents both challenges and opportunities for investors.

For savvy investors and developers, the presence of distressed and troubled deals creates prospects to acquire assets at potentially favorable terms. Strategic investments in these properties, coupled with effective redevelopment or repositioning, could yield significant returns. The overall resilience of the Dallas-Fort Worth market, as evidenced by its continued leadership in commercial transactions, indicates a fundamentally strong commercial real estate environment.

Join M&D Commercial Group as we break down what is going on in each sector of the Dallas-Fort Worth Commercial Real Estate market as of January 2024.

DFW Industrial Market Remains Stable with Vacancies on the Rise

The DFW industrial market had a record 70 million square feet of deliveries in 2023, driving vacancy rates to decade highs, according to CoStar’s most recent market insights report. Buildings above 500,000 SF have availability of 15% right now, while the average vacancy rate for all industrial in D-FW is now 8.9%.

Smaller buildings, those below 50,000 square feet, have less available and the vacancy rate is currently around 5%.

“By geography, periphery submarkets with heavy speculative development report the most dramatic rise in availability,” reported CoStar. “These outlying areas [like Kaufman County and Denton] report the highest availability in the market, ranging from 28% to 32%, compared to the metro norm of 11%.”

Meanwhile, interior submarkets near major highways and DFW International Airport remained more stable.

Net absorption, however, also remains stable at 58 million SF, still above pre-pandemic levels. Construction of industrial space has declined sharply, and CoStar’s forecast projects a rise in vacancy to 9% before the market will begin stabilizing by the end of 2024.

Market rent growth is 7.7% YoY, down from the peak of 12.6% in mid-2022. Currently, there’s a shift happening in the submarkets where tenants now have more options and more pricing power. In interior submarkets, landlords continue to increase rents. But quarter over quarter, rents are down about 1.9%.

On a positive note, signs indicate that retailers, such as Walmart and Target, may rebuild inventories in 2024. The inventory-to-sales ratio is back below the pre-pandemic average and increased containerized U.S. imports in November 2023 suggest a potential end to the import slump seen in late 2022 and early 2023, according the U.S. Census Bureau.

Furthermore, mortgage rates coming down are expected to increase home sales in 2024, which just might also boost sales of furniture and appliances. Although these trends may not immediately impact industrial space demand, continued retail sales growth in 2024 may lead to more favorable fourth-quarter absorption than in 2023.

Multifamily Sector Sees Rent Growth Declines, But Will That Last?

Rent growth in D-FW has fallen more than 1%, sitting at an average rate of $1,563, which is below the national average of $1,722 and marking the first time D-FW has seen negative rent growth since 2009.

Sales volume is currently at $6 billion, down from a whopping $26 billion in 2021. Higher cap rates due to higher interest rates have pushed debt costs higher, thereby greatly reducing activity in the multi-family sector. 

According to CoStar, properties offering concessions have risen to over 30% for the first time in nearly four years.

Across all quality levels, weaker rent performance is evident, with higher-end properties seeing a 2% decline, while three-star properties reported a year-over-year decline closer to -.5%.

While demand has increased in the region, with 12,000 leases signed in 2023, supply continues to outpace this demand. And, despite six consecutive months of declining rents, the rate of decline is now slowing, hinting at a potential rebound in 2024.

The overall vacancy rate now stands at 10.4%, but experts predict vacancies will stabilize at 10.5% and that rents could rise 3.5% by the end of next year.

Retail Market Remains Robust in D-FW

Dallas-Fort Worth’s retail market remains robust, boasting a mere 4.5% of inventory (24 million SF) available, the lowest on record. Demand consistently outpaces retailers giving back space, with tenants filling 50 million SF since 2021 while vacating only 35 million SF. Competition for well-positioned retail space has intensified, driven by major retailers and grocers. This is true across both surburban and urban areas of the metroplex.

Rent growth year over year is around 5.6%, which is better than the U.S. average. Neighborhood and strip centers have led the way in this growth. However, CoStar shows rent growths decelerating lately and predicts further slowdown of rent growths due to less consumption and a small decrease in demand.

“Our House View forecast calls for a slight pullback in absorption due to slower consumption patterns while maintaining a manageable construction pipeline,” reports Costar. “In turn, vacancy rates are expected to remain balanced, and the retail segment is in a relatively solid position should consumption retreat.”

Despite challenges like high construction costs and interest rates, DFW remains desireable for companies seeking a business-friendly environment, according to reports by REBUSINESSONLINE. Retailers adapting to economic conditions include essential-needs retailers like Dollar Tree, H-E-B, Target, and Costco. These type of companies are continuing to expand into the metroplex.

All in all, the consensus it that D-FW should remain insulated from any downturns.

Office Sublease Volume Drops as Job Growth Slows

The office vacancy rate in Dallas-Fort Worth sits at 17.8%, with 89 million SF available for lease. However, rent growth is up a little over 2% year over year.

Suburban markets have seen net absorption of 35 million square feet of space since 2020, while urban submarkets have seen 30 million square feet of net move-outs.

Smaller spaces, those less than 3,000 square feet, accounted for 38% of the total office leasing in 2023.

Sales volume for office in 2023 was at $1.9 billion, the “slowest year since 2011,” according to CoStar.

Office sublease volume in DFW dropped to 10.5 million sq ft in 2023, the first decrease since 2019, but sublet availability remains at 2.4%. Key nodes like Upper Tollway and West Frisco hold 35% of sublease space, with 61% from 1990s or earlier buildings.

Additionally, the Texas A&M Texas Real Estate Research Center reported a deceleration in DFW employment growth impacting the commercial market. Despite this, total nonfarm employment increased by 3.75% YoY in 2023, meaning that the job market in the region is still experiencing overall growth.

Navigating DFW Market Complexity: M&D Real Estate's Expertise

In summary, the Dallas-Fort Worth (DFW) commercial real estate market is well-positioned as a key player in US investment due to its robust economy, tax-friendly environment, pro-business policies, booming population growth and strong geographic location.

The industrial sector is remains strong, though with rising vacancies and more deliveries expected, rent growth will moderate.

The multifamily sector continues to see strong demand as well, but an onslaught of construction projects in the area has outpaced that demand, driving rent growth negative for the first time in nearly 15 years. However, experts expect the multifamily market and rents to rebound in 2024.

Retail remains solid and robust, with large retailers and grocers still actively seeking space in the area and absorption of space also driven by suburban strip centers. The D-FW retail market is well insulated from any foreseeable economic downtown, according to most experts.

In regard to office, vacancy rates remain high and are expected to increase further yet next year – but suburban office space has performed well in certain pockets, particularly seen in spaces smaller than 3,000 square feet which continue to take up more and more market share in D-FW.

As you navigate the complexities of the DFW commercial real estate market in 2024, M&D Real Estate’s experienced commercial associates stand ready to assist. If you have any questions, require detailed insights, or are considering strategic investments, do not hesitate to reach out to our team. Your success in the vibrant DFW market is our #1 priority. Contact us today for personalized guidance and unparalleled expertise in navigating the D-FW commercial real estate landscape.

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