January 14, 2015

Six 2015 Predictions

DFW's real estate experts agree—our diversified economy means the Metroplex will fare better than the rest of the country. But, there's a wariness about the impact of oil prices. We rounded up some of the industry's biggest names to give us their expert opinions on what lies ahead in 2015.

Colliers EVP Jack Minter (with a white-tailed ptarmigan) thinks the Dallas office market will continue its run. Dallas has a balanced economy and has new companies like Toyota and many others moving here and calling the Metroplex home, he tells us. That influx of companies will continue this year. And the drastically dropping oil prices over the last several months will help the retail and housing sectors, he says. However, the lower oil prices do create a black cloud because the energy sector and the companies that service it will be in a wait-and-see mode until it is clear what the price of oil will be on a going-forward basis.

Trademark Property Co founder Terry Montesi (here with his wife and former President and First Lady Jimmy and Rosalynn Carter at a Habitat for Humanity build) tells us that while the overall US economy in 2015 will remain in slow growth mode, we'll fare better in DFW. The Texas economy is strong because of the diversification of our business infrastructure: technology, agriculture, automotive, real estate, energy, just to name a few, he says. As a result, DFW should hold up to a drop in oil prices better than some other markets in Texas and could be net positive because of the drop in living expenses to the consumer. Specific to retail: 2015 will continue to see a focus on redevelopment, as opposed to new development, he tells us. Trademark is working on several major redevelopments in DFW: Victory Park, Uptown Village at Cedar Hill, The Shops at Highland Village and Westbend.  

DTZ vice chairman Randy Cooper says oil prices will be a huge barometer of the Texas economy. Dallas is not immune; the oil and gas industry is close to 20% of the overall economy statewide. This impacts our banks, funding for schools, roads and every segment of our lives in Texas, he tells us. “We need the tax revenue to keep up with the growth and the services. If the revenue is cut in half, Texas will feel it,” he says. The obvious answer for the state to reconcile a huge drop in oil and gas tax revenue is taxes, he says. 

Structure Commercial president Eric Deuillet warns that Californians (among others) are flocking to Texas. With steady interest rates and more state incentives will come more HQs, like Toyota. Construction will continue on much-needed projects, but Eric hopes developers and lenders have learned a lesson from past cycles to avoid overbuilding. Despite all the new residents coming, retail will continue to grow online. That means the service industry, medical and restaurants will be the dominant fillers of space. He anticipates restaurants and retailers, along with a resurrected Downtown, Deep Ellum and Design District will continue to make Dallas more of a trendsetter than the trend follower it used to be.

The Weitzman Group director of leasing/VP Blake Shipp (just to the left of the TWG table with clients at the New York ICSC event) says retailers will create a more specialized store experience specific to their brands in flagship locations across the US, which is crucial since brick-and-mortar locations now have to compete with Internet sales. This can be done by incorporating collaborative meeting spaces within stores or celebrating local baristas and juice bars within retail spaces, for instance, he says. He also expects to see more creative uses of space that give the customer a reason to stay longer and shop more (a customer cannot experience shopping behind a computer or smartphone). With a majority of national retailers scaling back on new store growth, he expects to see a continued resurgence of local restaurants and retailers.

Cresa Dallas managing principal Susan Arledge (here, after getting her 2012 Stemmons Service Award) cautions us that “he (or she) who predicts by the crystal ball, must learn to eat broken glass.” Susan went even beyond 2015 as she tells us the greatest impact on our real estate industry, from both the leasing and new development and construction perspective, will be the growth of the Millennial population. In seven years, 75 million Baby Boomers will be older than 55. As they bail out of the workforce, there just won't be enough qualified entrants from the Millennial/baby-bust generation to replace them. That creates a zero-sum game and a war for talent, which usually means that if you need qualified employees to survive or grow, you will have to steal them from your competition, she says. That completely shifts the power in the hiring relationship from employer to employee, which means employers have to focus on locating their companies in places where employees want to live and work. To remain competitive, companies will have to find ways to redesign their space to reduce occupancy costs because they will have to pay more for real estate in the higher profile/more desirable locations like Uptown and Oak Lawn.

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KFK Group Reveals
Big Plans for One Main Place

Construction has already started on KFK Group's 323-room Westin hotel in the 1M SF One Main Place tower Downtown. KFK made the announcement of its selection of Westin at an event Tuesday, and we sat down with KFK Group's Nick Malone, who tells us the hotel and its amenities will be the key to leasing up the 80% vacant tower. (Pictured is Dallas Mayor Mike Rawlings, who spoke at KFK's event). Nick tells us the New Orleans-based firm was shopping the hospitality market in Downtown even before bidding on the tower at 1201 Main St last spring. It's all about having the right brand to fit the building's needs, he says. “We're trying to reposition the building and update everything from the office space to the amenities, and a luxury hotel like the Westin is another way to do that,” Nick tells us. The Westin's reputation among business travelers makes it a good bet for the hotel and complementary to the existing hotels downtown, too, he says.

Dallas-based Forrest Perkins is designing the hotel (rendered here is the Westin entrance), which will open in December. To help gear up for the speedy turnaround, Nick tells us he's going to be leaving the Big Easy for more time in Big D. Demolition is complete on the second floor, as well as the 23rd through 32nd floors, Nick says. The second floor will be the hotel lobby with a reception area, lounge, library, ballroom, restaurant and main kitchen that will service events and room service. The hotel will be on the upper floors. There's lots to do between now and December, but Nick says the timeline should work with all of the construction concentrated on the interior. The building is being placed on the National Register of Historic Places, and the exterior (including the windows) will not be altered, he tells us.

While the building's largest tenant has vacated (resulting in that 20% occupancy), Nick says some tenants have remained. KFK will office on the 13th floor, which has been renovated with spec suites. (Pictured is One Main Place.) UCR's Jack Gosnell and Gordon Atkinson are leasing the 50k SF of retail, but the next big task is attracting office tenants, Nick tells us. Stream Realty's Sara Terry, Ramsey March and Matt Wieser have been tapped to fill the 600k SF of office space. Nick says they were waiting to market the space until the hotel announcement was made. “There have been other Downtown projects that have made promises and not delivered, so we wanted to show that we're here and that we're going to make the project everything we said it would be,” he tells us.

Nick (pictured by the building entrance) says improvements to the tower should elevate the space back to a Class-A building. Nick is optimistic that the office portion could be stabilized within two years as Downtown's revitalization continues. “We saw it in New Orleans; more people are moving into these cores,” he tells us. People want to be closer to where they work and where the action is, he says. It makes sense to leave your office and head to your next destination without having to spend an hour in a car. “That opens up possibilities in Dallas,” he says. 

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Watch: PWC Predicts Top Markets for Real Estate Investment in '15

Mitch Roschelle, the US real estate advisory practice leader at PwC, sat down with Bloomberg's Pimm Fox to discuss the top US markets for real estate investment in 2015. If you were too busy watching Friends on Netflix, here's a rundown. Roschelle points out that with prime buildings in New York and DC fetching $1k PSF rents or higher, investors are increasingly looking for higher yields and replacement costs. Texas cities driven by oil score high in those categories, especially as their economies diversify.

On the note of diversifying, Mitch says that perennial retiree favorite Phoenix is catching on with Millennials thanks to impressive job growth. "Jobs are chasing people," he says. "Not the other way around." And areas popular with students (e.g. Phoenix and Charlotte) are reeling in employers. Jobs and young residents should revive several markets in 2015 and even boost the fortunes of downtrodden cities. When it comes to the year's biggest comeback kid, Roschelle puts his money on Detroit. Listen to what he has to say here.

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Don't Miss Bisnow's Future of Healthcare Real Estate Event Jan. 21

The impact of medical-related real estate can be felt across the Metroplex from the opening a few weeks ago of UT Southwestern's new 460-room 1.3M SF William P. Clements Jr. University Hospital to the upcoming opening of Parkland's new 2.5M SF campus (pictred) with 862 single-patient rooms. There's also a growing number of suburban MOBs and free-standing ERs. We'll give the lowdown on all of these projects, as well as what's ahead at Bisnow's 5th annual DFW Future of Healthcare Real Estate event on Jan. 21 (7:30am start) at the Westin Galleria. Come hear from the hospital execs: Parkland Health & Hospital System EVP Kris Gaw, Texas Health Resources EVP Brett McClung, Methodist Health System COO Pamela Stoyanoff and Forest Park Medical Center CEO Archie Drake. Save your place by buying tickets now.

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Tell Us

Name your favorite soundtrack and why you like for a chance to win a pair of tickets to Bisnow's Future of Healthcare Real Estate event on Jan 21. We're partial to Purple Rain and the Lord of the Rings scores, but the Guardians of the Galaxy was pretty awesome, too. Send your faves to tonie@bisnow.com