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How It Started ... How It's Going: Bisnow Revisits 2022 Predictions For Dallas-Fort Worth CRE

After riding what appeared to be an unstoppable high in 2021, members of DFW’s commercial real estate industry looked forward to 2022 with unbridled optimism. 

But that all changed halfway through the year, when the Fed’s plan to battle inflation drove interest rates to new heights and all but decimated the industry’s ability to kick off new projects.

This unexpected turn of events has morphed a relentlessly sanguine industry into one that is bracing for impact. In Texas — where commercial real estate has often emerged from economic downturns stronger than before — an uncomfortable possibility rumbles beneath the surface: All good things must come to an end.

Looking back on predictions made at the start of this year, an intriguing trend emerged. Experts were right —  until they weren’t.

In this article, Bisnow analyzes just how last year's prognostications landed as 2022 draws to a close.


Prediction #1: Corporate relos will continue, with several Fortune 500 companies making the move to DFW

Twenty-three companies announced plans to move their HQs to Texas in 2022, but overall, it was a relatively weak year for corporate relocations

This year’s HQ relo count is less than half of the 62 recorded in 2021 and the sharpest decline since 2017, according to YTexasThe slump is multifaceted, experts told Bisnow, and can be attributed to macroeconomic challenges, Texas’ divisive political environment and rising prices, among other factors.

The profile of companies headed for the Lone Star State ranges from Fortune 500 giants like Illinois-based Caterpillar to burgeoning firms like California-based Aviatrix.

Carlos Vaz, co-founder and CEO of Dallas-based multifamily investment firm Conti Capital, said while the number of relocations has slowed, the diversity of newcomers indicates there is still a lot of interest in Texas compared to other states.

“Maybe you don’t have the Fortune 100 coming in, but there’s Fortune 1000 coming in left and right,” he said. “It’s still creating a massive amount of jobs.” 

Prediction #2: Employers will bring hospitality-like services to the workplace in a bid to reignite the office landscape

Company leaders who dragged their feet on embracing hybrid work finally laid down their swords this year, as it became increasingly clear the office landscape had forever changed.

Close to 80% of company leaders now agree that offering remote work is critical to attracting and retaining talent, a JLL survey found. More than half of those companies planned to incorporate remote work by 2025.

Occupancy at DFW office space hovered around 50% for the majority of 2022, which is better than most of the nation but still far below pre-pandemic averages. Those that were most successful in bringing back employees spent extra money on highly amenitized real estate in desirable submarkets. 

According to an analysis of 200 DFW leases by CBRE, tenants who moved in recent quarters are paying 26.4% more in base rent than at their previous locations, indicating a flight to quality trend that is driving the office market’s recovery.


Prediction #3: Multifamily will continue on an upward trajectory, as long as anti-apartment sentiments are kept at bay

DFW has for years been a leader in multifamily development and investment, and for the first half of 2022, the Metroplex lived up to that reputation. But things began to take a turn in Q3, and experts now predict the region may be approaching the end of its multiyear high. 

After falling to a five-year low of just over 2.5% in the first quarter, vacancy rates doubled to 5% in Q3, according to Northmarq. Construction deliveries also slowed, with year-to-date completions down 28% from the year prior.

The Metroplex is still on track to lead the nation in multifamily investment in 2022 despite a 12% drop in Q3 transactions, per Northmarq. Double-digit rent growth has thus far buoyed the market, but Vaz said rising interest rates will continue to pressure owners, especially those looking to refinance.

“Interest rates have really hit people hard,” he said. “In 2023, there will be situations where people who had a floating rate are not going to be able to refinance their properties. That’s going to be an even greater issue.” 

Prediction #4: Supply constraints will drive up prices at DFW data centers

Data centers across the Metroplex saw rate hikes of between 10%-20% in 2022, mostly driven by a significant drop in vacancy that occurred at the end of 2021, said Ali Greenwood, executive director in Cushman & Wakefield’s Global Data Center Advisory Group.

Hyperscalers like Google and Meta took down massive amounts of space in North Texas and across all major data center markets this year, exacerbating a supply shortage that is difficult to resolve amid runaway inflation and lengthy construction delays, Greenwood said. 

Data center space set to deliver in 2023 is already pre-leased, and in the absence of large speculative projects, Greenwood said DFW should brace for another year of double-digit rent growth.

“You’re going to continue to see pricing increase a little bit through 2023 because people are still working on construction projects for leases signed in 2022,” she said. 

One unique trend Greenwood is expecting in the new year is an uptick in demand for second-generation space. Landlords who have leases coming up for renewal may seize upon the opportunity to bring in tenants at higher market rents, which could force some companies to settle for older facilities. 

“People are used to being able to buy the brand-new, shiny, ground-up product that just delivered,” she said. “I think it will be a couple of years before people will have the opportunity to lease that space again.”


Prediction #5: Industrial rents will increase by 10% or more in infill submarkets

DFW’s industrial market performed even better than expected this year, with rental rate growth reaching 12% to 15% in the hottest submarkets. Vacancy in those same areas remains at historic lows, according to Heath Johnson, senior vice president and Dallas market officer with Prologis.

But developers are encountering recession-related obstacles that stand to alter DFW’s industrial landscape in 2023. A significant disruption in the capital markets has all but halted speculative construction activity, Johnson said, which means it will be even more difficult for tenants to find space next year.

“Projects that were speculative in nature, that had not yet closed, a lot of those had fallen out of contract,” he said.

Prologis predicts U.S. warehouse development starts will fall by 60% to less than 175M SF in 2023, marking a seven-year low for the nation.

The company has 2.2M SF of projects under construction in DFW, Johnson said, but properties where concrete has not yet been poured are likely to remain undeveloped for the foreseeable future.

“We need to see stability in interest rates and cap rates to understand what the new normal looks like,” he said. “Until we achieve that, you’re just not going to see much growth in terms of development.”

Tenants in search of industrial space have thus far been undeterred by turmoil in the economy, Johnson said, which means rental rate growth will likely continue in 2023.

“We'll see what happens long-term, but there's just so much demand and not enough supply, with new development on pause,” he said. “[Rent growth] will be lower than it is this year, probably in the single digits.”