Bonus Blog Post by Amanda Wells

How is Commercial Real Estate in North Texas Holding Up?

It is no secret that the United States has been in a lot of trouble lately when it comes to the real estate market. Residential foreclosures can be spotted in almost any neighborhood and commercial building vacancies are not hard to spot either. Most have probably heard by now that Texas has taken less of a hit in the real estate market than most areas in the US, but a majority of the news is about residential real estate. This led me to examine a less popularized side of the real estate market in today's economy- commercial real estate. This post will examine how commercial real estate in the DFW area is holding up during this economic downturn, both relative to past years in DFW and relative to other areas of the country.

The North Texas commercial real estate market has no doubt seen some decline in the last year. The retail market alone is expected to reach a 13.2% vacancy rate by the end of 2009. This is a rise of 1.8% from last year's rates in DFW, and these numbers are only for commercial retail space (fwbusinesspress.com). Although "retail construction is still chugging along" (viprealtyinfo.com), there have been some declines in the construction of new commercial space. While 6.4 million square feet are expected to be built this year, that is still a decline of 2.6% from last year (fwbusinesspress.com). All of this is, with no doubt, related to recent job losses in the area, and around the US. Not only are companies reducing their payrolls and in need of less commercial building space, but the loss of jobs causes families to spend less, which fuels the cycle of job-cuts and recession.

Still, the DFW area is strong for many reasons. "The DFW market ranks No. 9 among the top 10 investment markets", states one article from Star-Telegram. This is partly related to the fact that North Texas is the home to several large companies, including ExxonMobil, DFW Airport, and AT&T (star-telegram.com). The Barnett Shale and the new Cowboys stadium have also provided many jobs in the area, although these will eventually phase out.

"The report (ranking DFW as No.9) does not paint a pretty picture for the nation's commercial real estate markets. Ongoing drops in property values, more foreclosure and delinquencies, and the limping economy will continue to crimp property cash flows, according to the report" (star-telegram.com). But DFW is expected to thrive and job growth, as well as relatively good commercial occupancy rates, will keep North Texas healthier than the rest of the nation, even if some things have slowed down. Local commercial investors are starting to use some of their saved-up cash to invest in North Texas again, and out-of-state investments are starting to slow, which is bringing the area back to a more normal position (fwbusinesspress.com).

The overall picture that is painted here is that DFW is clearly not recession-proof, as commercial building has slowed from previous years, property values have declined, and vacancy rates have risen. But for many reasons, North Texas is thriving far better than the rest of the United States and businesses should do well. Analysts tag DFW as one of the first markets that will "surge ahead when the economy begins to improve. The DFW market is expected to see signs of growth as early as 2010" (viprealtyinfo.com). All of this is very hopeful for the commercial real estate market of North Texas, as well as the rest of the real estate market in the DFW area.

-Amanda Wells

Sources:

Fort Worth Business Press: "Recession Worries Impacting North Texas Retail Market"

Star-Telegram: "DFW Should Weather Commercial Real Estate Downturn"

VIP Realty: "Dallas Commercial Real Estate"

VIP Realty: "The State of the North Texas Commercial Real Estate Market: What's Next?"