Shrinking Yields, Boom-Bust Fears Push DFW From No. 1 Spot On Investor Target List
Real estate investors and developers surveyed for a PwC and Urban Land Institute study still view Dallas-Fort Worth as a Top 10 U.S. real estate investment market even though the region plummeted from the No. 1 spot last year to No. 6 on shrinking yields, oversaturation fears and memories of former boom-bust cycles in the Big D.
PwC U.S. and the Urban Land Institute reported these finding in the Emerging Trends in Real Estate 2020 report, which analyzes the sentiments of hundreds of investors, developers and liquidity providers in the real estate space.
The survey found DFW is still a hot market among C-suite real estate executives, but Austin is back at No. 1, with DFW losing points when it comes to K-12 educational offerings, infrastructure, mass transit supply and the overall cost of investment.
DFW also is behind Raleigh-Durham, North Carolina (No. 2 in the survey), Nashville, Tennessee (No. 3), Charlotte, North Carolina (No. 4), and Boston (No. 5).
"There is a rising sentiment that Dallas could have some potential oversupply if there is a downturn," PwC U.S. Real Estate Practice leader Byron Carlock said. "With the investor market, you always have to prove that a Texas deal is not going to be subject to past boom-bust cycles that [investors] may have experienced in a Texas market before."
While Carlock does not see a boom-bust cycle in DFW at this time, the latest PwC survey — although favorable in terms of the Metroplex's overall strength — does report an "abundance of capital" targeting the market, which has the effect of pushing yields to "very thin margins," while property taxes may "face upward pressure to sustain infrastructure growth."
It has become more difficult to find cost-effective DFW development sites in top submarkets like Uptown Dallas, Frisco and Legacy Town Center, which may have driven investor sentiment down, Carlock said.
Still, Dallas-Fort Worth ranks No. 6 and remains a coveted investor market with population growth sustaining demand and the area maintaining relative affordability compared to other markets of its size. As the report says, DFW still has land, which keeps costs down, and it remains a highly productive market in a no-income-tax state.
Frequent DFW-competitor Charlotte soared in the survey and was recognized as the fourth-most-appealing market for investors.
Charlotte made headlines this past summer when it edged out Dallas-Fort Worth as the landing pad for retailer Lowe's 2,000-person tech hub.
During the same month, Virginia beat Texas as the nation's top state for doing business according to CNBC's 2019 annual report. Virginia landed the coveted Amazon HQ2 site that Dallas-Fort Worth landlords competed heavily for during the year.
Charlotte may have benefited from the recent BB&T and SunTrust merger announcement, which may have caused real estate executives to anticipate increased office tenancy and real estate market growth, Carlock said.
Competing Texas city Austin (ranked No. 1) beat out Dallas-Fort Worth on its deep pool of talent, lifestyle amenities and commitment to business and real estate expansion.
Even though Austin suffers from ongoing traffic issues and housing affordability pressures, development in the area is booming with Apple's $1B North Austin campus project, a transit-oriented development underway near downtown Austin on Lady Bird Lake and the new Dell Medical School now open at the University of Texas, the report said.
"Transaction activity in Austin is above what you would expect from a market of its size, and 2019's early results are above the three-year historical average," the study's authors added.
As result, survey respondents ranked Austin as a solid "buy" when analyzing assets in the industrial, office and apartment spaces.