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'An Outstanding Success': Despite Turmoil In The Market, DFW Has Mostly Beaten The Odds

The Dallas economy continues to outperform the rest of the nation, a phenomenon that has carried the city’s commercial real estate market through one of its most tumultuous periods in recent history.

Rising interest rates remain the prevailing headwind stymying transactions in North Texas and beyond. But investors with the wherewithal to close deals are still flocking to Dallas, where, against all odds, momentum continues.

CBRE Global Chief Economist Richard Barkham delivers the event's keynote speech.

“There are very few places around the world where you can go and tell this story,” CBRE Global Chief Economist Richard Barkham said Tuesday at a Bisnow event at One Dallas Center. “It’s an outstanding success.”

Business-friendly tax regulations, a lower cost of housing than other parts of the country and plenty of available land are the competitive advantages companies and developers chase when they come to North Texas. 

That formula has been effective in driving growth, Barkham said. The Metroplex was the No. 2 metro area for employment growth last year, with more than 154,000 new jobs created, second only to New York City. The region also leads the nation in population growth, adding 152,598 new residents between 2022 and 2023.

The city’s commercial real estate market has far higher vacancy rates than other metro areas, especially in its offices. But that is more of a function of rigorous growth alongside lower demand than evidence of weakness, Barkham said.

Kensington Vanguard National Title's Zach Sams, Edge Capital Markets' Christopher Morris, Lone Star PACE's Lee McCormick, Mohr Capital's Bob Mohr, Meritax Advisors' Ryan Chismark, Empira Group's Branko Kuzmanovic and Garfield Public/Private's Steve Galbreath

“The level of Dallas deliveries are, generally speaking, much higher than the national average,” he said. “You’ve had this big spike in new construction in the Dallas area, which is good in the long term.” 

On the office side, some of the vacancy glut downtown is being addressed by a slew of conversions to multifamily. Pacific Elm Properties is on the forefront of that work, turning millions of square feet of defunct office space across Santander and Bryan towers into residences. 

“Downtown is really busy right now,” Pacific Elm Vice President of Leasing Reegan Busby said. “Dallas is leading the nation in conversions of older, vacant blocks of downtown real estate.”

Yet there are some vacant office buildings that aren’t feasible for conversions, which puts them at greater risk of distress. 

A few of those properties have already entered the foreclosure process. That trend is likely to gain momentum over the next few years, especially as owners grapple with fewer options to recapitalize their loans, Cushman & Wakefield Vice Chair Robbie Baty said.

Gordon Highlander's Greg Gordon, Cushman & Wakefield's Robbie Baty, Colliers' Emily Hoffman, Shop Cos.' Brittney Austin, Pacific Elm Properties' Reegan Busby and Greysteel's Doug Banerjee

“Developers and owners that can convert to some sort of amenitized building and have a competitive price point will do OK and eventually fill up,” he said. “But the ones that can’t do that are going to continue to sit empty, and we’re going to see a massive wave of foreclosures and turnovers.”

A lack of available capital has been a tailwind for some companies, including Lone Star PACE, which administers the state’s property assessed clean energy program. PACE offers low-cost, long-term financing for energy- and water-efficiency improvements secured through a voluntary assessment on commercial property.

Demand for PACE has skyrocketed as owners look for alternative ways to source debt, causing Lone Star PACE’s lending volume to double each of the past three years, President Lee McCormick said. 

“A few years ago, we were kind of a niche market,” he said. “But as senior lenders have pulled back on their lending limits on projects and capital stacks are starting to see those gaps widen, a lot of developers have turned to property assessed clean energy financing to fill those gaps.”

Gensler's Steven Upchurch, Masterplan's Dallas Cothrum, De La Vega Development's Artemio De La Vega, Hall Group's Donald Braun, Catena Homes and Douglas Elliman Real Estate's Harrison Polsky, and Pacific Elm Properties' Billy Prewitt

Optimism around the Federal Reserve’s indication of future rate cuts is getting some deals moving again, but much of that activity has been diverted toward the suburbs amid bureaucratic inefficiencies in Dallas.

The city’s permitting system has been a deterrent, and earlier this week, Dallas City Council approved a series of development fee increases that could further alienate investment.

“[The city is] more helpful on the large projects, but if you have a small or medium-sized project, you can just get lost in the chaos of all their different silos,” Masterplan President Dallas Cothrum said. 

Despite some of its growing pains, developers remain optimistic about the long-term prospects of the market. The region will continue to boast advantages that propel growth, and a general tendency toward unfettered ambition should keep the city a cut above the rest. 

“We are in the best region in the country because people here are go-getters,” De La Vega Development CEO Artemio De La Vega said. “We have a can-do attitude here.”

CORRECTION, APRIL 1, 9:17 A.M. CT: A previous version of this story misidentified Harrison Polsky. It has been updated.