Happy Days Are Near Again For DFW Market? So Insists National Retail Real-Estate Report.

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Marcus & Millichap
An old friend of mine was kind enough to forward along the hot-off-the-presses Marcus & Millichap National Retail Report, the must-read amongst real-estaters; insists my pal of the mixed-to-optimistic forecast, it's "a pretty thorough insight into the retail world." In which case, by way of introduction: "Caution gradually gave way to more confidence toward the end of 2010 as consumers surprised to the upside in expenditures and companies began to increase hiring."

In Dallas-Fort Worth especially, says the report, which bumps up the market (out of 44 once-overed) five spots from last year's No. 23 ranking, insisting that "Dallas/Fort Worth ranks third in employment growth for 2011." Other positive signs: Spots left vacant by bankrupt big-boxes are being taken over by opportunistic chains seeking further expansion; rents should see an upswing following a couple of years in the southbound lane; and construction completion's expect to rise while vacancies are on their way down. The entire DFW section follows.

Uneven Recovery in Dallas/Fort Worth Retail Market; Central Submarkets to Lead

Dallas/Fort Worth will register some of the strongest employment growth in the nation during 2011, and the vast majority of jobs lost in 2008 and 2009 will be restored. With the economy building momentum and construction holding at below-average levels, vacancy will continue to retreat. This should set the stage for owners to implement rent increases after two years of cutbacks. Most of the desirable locations left vacant by bankrupt big-box retailers have already been re-leased by expanding chains, such as buybuy Baby, Best Buy and PetSmart, which have taken advantage of opportunities to pick up space in well-trafficked shopping centers. At the same time, demand for anchor and in-line space in weaker locations has languished. Fundamentals reflect these trends, with occupancy in power centers back to levels last seen in 2007. Conditions in neighborhood/ community centers, on the other hand, remain soft, particularly in outlying areas like West/Southwest Dallas, Northeast Dallas and Northeast Fort Worth. As a recovery cycle unfolds over the next 18 to 24 months, improvements in retail property operations will remain uneven, with higher quality shopping centers in central submarkets leading the way.

Transaction velocity will rise as more bank-owned properties and stabilized assets come to market and out-of-state investors return. Many developers who held through the downturn will list properties as competition intensifies for high-quality deals, particularly single-tenant assets occupied by national chains. On average, full-service restaurant properties in the Metroplex trade at cap rates in the 8.0 percent to 8.75 percent range, while the most sought-after single-tenant properties, such as national drugstores, change hands closer to 7.5 percent, provided they have signifi cant lease terms remaining. Cap rates for stabilized infill multi-tenant properties will remain relatively flat in 2011 at 9.0 percent to 9.5 percent; multi-tenant centers in the suburbs trade closer to the high-10 percent range. While shopping center demand will tick up, buyers will assume lower rents for leases inked during the boom, weighing on pricing.

2011 Market Outlook

◆ 2011 NRI Rank: 18, Up 5 Places. The Metroplex improved five spots in this year's ranking due to strong employment gains and falling vacancy.

◆ Employment Forecast: Employers will create 77,000 jobs in 2011, a 2.7 percent increase. Last year, 41,000 positions were added.

◆ Construction Forecast: Developers will complete 2.1 million square feet during 2011, up from 2010 but 63 percent below the five-year average.

◆ Vacancy Forecast: Retail vacancy will decline 40 basis points this year to 11.8 percent. In 2010, vacancy slipped 30 basis points.

◆ Rent Forecast: In 2011, asking rents will rise 1.8 percent to $15.49 per square foot as effective rents increase 2.7 percent to $13.49 per square foot.

◆ Investment Forecast: Owners of properties proximate to distressed assets and considering a sale may benefit by listing sooner rather than later. When nearby troubled properties trade and new owners intensify re-tenanting efforts, often at lower rates due to their costs, effective rents and values in the area many times are affected.

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7 comments
thrifty pickle
thrifty pickle

"Spots left vacant by bankrupt big-boxes are being taken over by opportunistic chains seeking further expansion"

Translation : Landlords are so desperate that they are leasing out to Dollar General and Family Dollar even though they realize it could drive other tenant rents down.

LaceyB
LaceyB

Awesome. My rent's gonna go up, I can't afford a house, and companies are hiring from within, but not externally. F it, I have no shame anymore. This all just blows. Even Suzie Orman says that there's no hope for us until 2014.

Oakparkstudio
Oakparkstudio

Some retailers simply won't be coming back either. Home-grown stores that customers shunned during the economic downtown are still shy about looking for other locations and plenty of good locations are still out there and haven't been snapped up.

Look at the old Smith & Hawken on Knox for example. Also, what about the North Dallas strip by the Galleria that housed Restoration Hardware, Aneita Fern and now the soon-to-exit Crate & Barrel?

I'm not sure we need more space for Big Boxes. I'm cheering for the return of great locally owned enterprises and mourn the loss of those that have already closed.

Lots of proprietors put their hearts and souls into their businesses only to be snake bit by the recession. Sad.

Karl
Karl

There's never been a better time to buy RE in Dallas - yeah sure. Talk to me in 3 or 4 years after the layoffs and residual economic collapse continues to blossom. Some of the jobs we lost over the last few years won't ever be coming back.

scottindallas
scottindallas

we are bound to suffer a decade of stagflation once we get our fiscal house in order, he haven't even done that. Susie Orman is not the best economic prognosticator.

scottindallas
scottindallas

I think many of the larger national retailers may be laden with heavy debt burdens, and hence might be prone to vanishing. This will precipitate a return of the kind of businesses you described, but those to garner fanfare and attention like the new--HGs or whatever you guys were so gaga about opening in NorthPark, meh.

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