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Bullish On Fort Worth: Economy And Population Growth Fuel CRE Sector

When XTO Energy, a high-profile homegrown company, dusted off its boots and left Cowtown for Houston, the blow was expected to be devastating for a city known for its storied oil history.

Fort Worth skyline

Not only did XTO employ nearly 2,000 people and own seven properties in Downtown Fort Worth, but it was a mover and shaker credited with rejuvenating the city’s downtown core. The Barnett Shale oil-drilling pioneer was scooped up by ExxonMobil in 2010 and announced its plans to leave in 2017. In July, it moved 1,200 employees to Houston, and another 400 will leave in 2020. About 350 are expected to remain.

Still, even with the shock of losing a beloved corporation, Fort Worth is holding its own, and several of its commercial real estate sectors are thriving thanks to a strong jobs market, a diversified economy and a growing city with a business-friendly climate.

A new ranking by WalletHub named Fort Worth the nation’s sixth-fastest-growing large city in the United States.

The city’s multifamily and retail sectors are particularly hot with high occupancies and plenty of new developments either opening or on the way.

Living large

The multifamily sector has outperformed the Dallas multifamily market for the past four to five years, IPA Senior Director Drew Kile said.

About 7,000 multifamily units are under construction in Fort Worth, according to RealPage, which tracks data on the multifamily sector. In comparison, Dallas has the most multifamily product on the way in the nation, about 28,000 units. But Dallas is a laggard for annual rent change — up 1.3% annually compared to the national annual pace of 2.9%, according to RealPage’s Q3 report.

Fort Worth-Arlington's rent growth has surpassed Dallas for the past five years with annual rent growth rates from 2014 to 2017 of 5.8%, 7.4%, 6.2% and 3.5%. Through Q3, it is up 3.1% in 2018. In comparison, the Dallas-Plano-Irving metro annual rent growth from 2014 to 2017 was 5.1%, 6%, 4.6%, 2% and 1.3% for 2018 through Q3.

Kile, who will speak at Bisnow’s Fort Worth multifamily conference on Oct. 24, said IPA believes Fort Worth’s multifamily sector will continue to outperform in the near term. 

Fort Worth recently started to hit the radar of major national real estate players, he said.

“If you look at the money and the developers now building in Fort Worth, it’s a lot of the really big names. You have major institutional equity and some of the brand-name developers. The underlying fundamentals have captured people’s attention.”

Those developers include Wood Partners, Alliance Residential, Greystar, Embrey Partners and Lang Partners.

Accelerating growth in the medical center district could continue the interest, he said.

Texas Christian University and the University of North Texas Health Science Center entered into an agreement in 2015 to create a medical school in Fort Worth, which is expected to accept its first class in 2019.

Fort Worth’s public health system, JPS, has a $1.2B expansion plan in the works that will include a bigger central hospital, a larger psychiatric hospital, four regional medical centers, a new day surgery center and a renovated cancer clinic.

Neiman Marcus at the Shops at Clearfork

Retail booming all around town

The medical district is part of the near south side, a roughly 1,400-acre district just south of Downtown with historic buildings that have attracted Fort Worth’s creative class. It is undergoing a renaissance that has attracted locally based restaurants, retail, bars, offices and residences, which are often going into redeveloped historical buildings.

The city’s river district on the southwest side of town includes two master-planned, ground-up developments that are still being built out: the 63-acre Waterside, which has attracted REI and Whole Foods, and the 270-acre Clearfork, which has Neiman Marcus and other high-end retailers. The West Seventh area of Fort Worth has also seen both retail and multifamily activity.

“Across the board, we are seeing record [retail] occupancies,” NAI Robert Lynn President of Fort Worth Retail Jon McDaniel said. “The average right now is 94 to 95% occupied, which is incredible,” he said. “You’ve got all these really cool projects and a lot of them seem to be geared toward dining and entertainment.” 

Big-time exits leave vacant office space

The office sector, at least downtown, has been a bit more challenged with vacancy at 12.6%, according to Cushman & Wakefield’s third-quarter DFW Market Snapshot. Although vacancy is up, deals are still getting done. In July, JLL's Cannon Camp and Todd Burnette represented accounting firm Whitley Penn in a two-floor lease at Frost Tower, which brought the city’s newest Downtown Class-A office tower to 70% leased. 

“There have been some challenges that Fort Worth has faced over the past four or five years,” said Camp, who specializes in the city’s office market. “I don’t know that it’s one single thing. Downtown, we’ve always had very stable ownership and Sundance Square has been a big part of that, but there have also been tenants who downsized or moved out of downtown and who left big blocks of space.”

Frost Tower Fort Worth

National homebuilder DR Horton, which was founded in Fort Worth by Donald R. Horton, moved to Arlington last year. It was actually the second time for the homebuilder to leave Fort Worth for Arlington. It first moved to Arlington in 1993 but then moved back to Fort Worth in 2004, occupying 10 floors of a City Center Tower that was rebranded with its name, where it employed 500.

The homebuilder built its own 200K SF campus in Arlington and moved out of Downtown Fort Worth in June 2017.

The latest blow to downtown came when Fort Worth legacy company XTO Energy, the biggest employer in the central business district, left leaving about 700K SF vacant. XTO put its seven-building portfolio on the market in June 2017 when it announced its plans to move — five of its buildings have since sold. 

In the most recent sale, Northland Properties Corp., the parent company of the Dallas Stars hockey team, bought the historic 120K SF WT Waggoner Building in August and has plans to convert it into a hotel.

Clearfork rises in prominence

The West/Southwest commercial real estate submarket has produced some direct competition for Fort Worth’s central business district. Clearfork will incorporate 2M SF of office space, 1.2M SF of retail space and 2,500 multifamily residences at full build-out.

Clearfork has delivered about 300K SF of Class-A office space across three buildings, just an eight-minute drive from Downtown. The office buildings have high ceilings, floor-to-ceiling glass, bigger floor plates and efficiencies not found in many of Fort Worth’s CBD office towers.

About 90% of Clearfork’s office space has been leased up within the past two years, Camp said.

“Clearfork has a lot of traction, but we are running out of space,” he said. “The bigger tenants, especially the full-floor users, are starting to look back Downtown and landlords are being aggressive in offering a lot of tenant improvements.”

Emily Hoffman, director of Tenant Advisory Services with Cushman & Wakefield, said she still sees resistance from downtown landlords to adjusting rents downward even with rising vacancies, but they have become more generous with concessions such as tenant improvements, she said.

Overall, Fort Worth is hitting on nearly all cylinders when it comes to commercial real estate despite a couple of major blows to its Downtown office market. Certainly, Fort Worth’s diversified jobs base, including its strong medical, manufacturing and distribution base have been key to its overall health.

“I think people missed the overall diversity of the Fort Worth market and thought of it as an oil town,” Kile said.

Learn more about Fort Worth, particularly its growing population, Oct. 24 at Bisnow's Fort Worth multifamily conference at Billy Bob’s Texas.