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Trepp: Despite Weaknesses, DFW Fifth-Strongest CRE Market; Houston Ninth

Dallas Skyline Downtown
Dallas skyline

Dallas-Fort Worth is the fifth-strongest commercial real estate market in a ranking of the top 15 largest metropolitan statistical areas while Houston, the only other Texas metro on the list, came in at No. 9 in a new Trepp report.

DFW catapulted into the top five due to its strong population growth and employment numbers, driven by quality of life and a low- to no-tax rate structure, but not all of its numbers were stellar.

“The Dallas-Fort Worth-Arlington MSA stands out among the top five MSAs due to its surprisingly high delinquency rate,” the report said. “Dallas’ lackluster delinquency performance is accompanied by its underwhelming occupancy rate of 89.20 percent.”

Dallas’ low occupancy and high delinquency rate (2.13%) are historical norms for the MSA, which ranked No. 13 in occupancy and eighth in delinquencies between 2010 and 2018.

The Houston-The Woodlands-Sugar Land MSA had a low delinquency rate of 1.23% but also a low occupancy rate of 89.74%. Its unemployment stood at 4.2%, higher than the national average.

“The Houston MSA has ranked last in occupancy over the last two years, with readings of 91.11% in 2017 and 90.80% in 2018,” according to the report.

“The (Houston) metro’s recent struggles in CMBS and non-CMBS performance can be linked to the shakeouts in the oil industry and, more recently, Hurricane Harvey,” Trepp said in the report.

Downtown Houston Skyline
Downtown Houston skyline

Variables such as delinquent loans and population growth were given higher weightings than new issuance in the study. The 15 largest MSAs outshined secondary MSAs via ample investment opportunities through new issuance, but the secondary markets had higher average cap rates than the 15 largest MSAs. Since the start of 2010, the 15 largest MSAs received $37.6B of new loan issuance while secondary MSAs had $10.6B.

Three West Coast MSAs took the top three spots in Trepp’s ranking while a Florida metro captured the fourth spot:

1.     San Jose-Sunnyvale-Santa Clara

2.     San Francisco-Oakland-Hayward

3.     Seattle-Tacoma-Bellevue

4.     Miami-Fort Lauderdale-West Palm Beach

The top three markets share strong economic growth that “has had an overwhelmingly positive impact on the CMBS performance of other Western US metros and has propelled their popularity, attracting domestic and international migrants,” Trepp said.

“Since 2014, the Western region’s migrant statistics have spiked, growing to annual immigration volumes of 200,000 individuals per year. This trio of MSAs has also significantly benefited from the strengthening of the manufacturing, finance, and technology sectors.” 

Here are the other large metros that made the list, and their ranking:

6.   Boston-Cambridge-Newton

7.   New York-Newark-Jersey City

8.   Los Angeles-Long Beach-Anaheim

10.  Atlanta-Sandy Springs-Roswell

11.  Phoenix-Mesa-Scottsdale

12.  Chicago-Naperville-Elgin

13.  Washington-Arlington-Alexandria

14.  Detroit-Warren-Dearborn

15.  Philadelphia-Camden-Wilmington