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NAR's List Of Top 10 CRE Markets Doesn't Include Dallas Or Houston. Here's Why

The bloom is somewhat off the rose when it comes to the Dallas-Fort Worth and Houston commercial real estate markets. 

While the metros still enjoy relatively stable economies in the no-income-tax state of Texas, another real estate report — this one from the National Association of Realtors — sees DFW and Houston being outperformed by tertiary U.S. CRE markets this year. 

Dallas skyline

NAR released its list of the top 10 commercial real estate markets of 2021, excluding every major Texas metro from the list with the exception of Austin-Round Rock. 

According to NAR, the top 10 markets for CRE this year will be:

  • Austin, Texas
  • Cape Coral-Fort Myers, Florida
  • Charleston-North Charleston, South Carolina
  • Las Vegas-Henderson-Paradise, Nevada
  • Nashville-Davidson-Murfreesboro-Franklin, Tennessee
  • Phoenix-Mesa-Scottsdale, Arizona
  • Raleigh, North Carolina
  • Salt Lake City, Utah
  • Seattle-Tacoma-Bellevue, Washington
  • Tucson, Arizona

"You can see that your tertiary markets are starting to get on the radar now," Gay Cororaton, NAR senior economist and director of housing and commercial research, told Bisnow during an interview. "I was surprised that Tuscon made it and Cape Coral/Fort Meyers."

As to why DFW and Houston are not in the top 10, NAR said when looking at some of the vacancy, employment and income growth data at the local level, smaller tertiary markets and Austin seem to have fared better than those larger metros in the past year. 

For example, the nonfarm employment payroll in Dallas-Arlington-Fort Worth fell 2.1% in December from prior-year levels, while the Houston-Woodlands and Sugar Land area experienced a 4.4% drop in total employment, according to NAR's report.

Austin, which ranks as the top CRE market in 2021, saw its December nonfarm payroll employment figure drop only 1% from Q4 2019 to Q4 2020. The number of residents without employment post-coronavirus also seems to be a bit more pronounced in DFW and Houston when compared to Austin, Cororaton said.

DFW's median income is growing more slowly when compared to the national average, with the region reporting a median income level of $72K in 2019 (the latest figure on file), compared to roughly $87K nationally, NAR reported from curated data. 

Austin had a median income closer to $81K during the same year, while Houston's median came in at about $69K.

Demand for apartments shows Austin still attracting a steady flow of paying renters, while Dallas and Houston may have some excess supply. Austin's multifamily vacancy rate came in at 3% in the fourth quarter of last year, while the Dallas area and Houston markets reported vacancy rates of 8.4% and 7.4%, respectively, in Q4. 

"Dallas is a very strong market, too, but relative to Austin, it didn't fare as well," Cororaton said. 

The top 10 markets' ability to take some of the competitive edge away from DFW and Houston doesn't necessarily mean Texas cities are hurting; they're just falling a bit from the top spots for projected CRE activity. 

"I would say when compared to high-cost metros of New York or San Francisco, we are still relatively affordable," CoStar Group Director of Market Analytics Paul Hendershot said.

"If we are not in the top 10, we are not far from being in the top 10. The fact of the matter is we create jobs, and at the end of the day, that is something that we cannot discount."