Despite great conditions in the DFW office market, many real estate professionals are rubbernecking, looking for the end of an unnervingly long cycle. Office market gurus at Bisnow’s Big South Office Event said this cycle still has two years left, but now is not the time to overextend.
The metrics look great for Dallas-Fort Worth. Vacancy is in the 19% range, rent is still growing and job growth looks to be on track for the foreseeable future. The length of this cycle is its own fly in the ointment, souring an otherwise rosy picture.
The consensus among the professionals at our event seems to be that DFW has two more fat years. Peloton Commercial Real Estate principal Sarah Hinkley, Olymbec Senior Asset Manager of U.S. Properties Philip Lassman and Cawley Partners CEO Bill Cawley all predict the end of this cycle is coming around 2019-20. Note that this is not a prediction of another Great Recession; it is a prediction of when a correction will come to the market.
“In-migration, capital flows — those are the two dynamics that will control the health of our office market. Right now, they are in check, and as long as that stays in check, we will have the normal little ebbs and flows, but I think we are healthy for the moment,” PegasusAblon founder Mike Ablon said. Ablon falls on the shorter end of the spectrum in his end of cycle prediction. He thinks there are 12 to 18 months left.
Cawley said the buildings bought today are going to be harder to squeeze money out of than if they had been bought four years ago, but there is still solid profit to be made within the tail end of this cycle.
“No matter where you think or you may be in the cycle, you have to operate your business, so I am still trying to buy office buildings,” Cawley said.
Cawley suggested avoiding increasing leverage since the risk is already going up with the end of the cycle approaching. It is time to pick solid investments, minimize risk and enjoy the end of a great cycle. Responsibly.
View scenes from BOLD South below.
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