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Real Estate 2020 Tarrant County Commercial Real Estate Forecast: More growth, changes in retail

2020 Tarrant County Commercial Real Estate Forecast: More growth, changes in retail

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By Marice Richter

Booming population growth propelled 2019 into another year of economic prosperity marked by a strong showing in all segments of the commercial real estate market in the Dallas-Fort Worth area and particularly in Tarrant County.

The outlook for 2020 anticipates continuing those positive trends, particularly for in the industrial and multi-family sectors, according to local commercial real experts who recapped successes in market during 2019 and offered predicts for the year ahead at the 2020 Tarrant County Commercial Real Estate Forecast hosted by the Real Estate Council of Greater Fort Worth.

Efforts by the Fort Worth Chamber of Commerce in concert with the city of Fort Worth’s department of Economic Development, Tarrant County and partners across six North Texas counties put 90 projects in play during 2019, up from 71 in 2018 and 51 in 2017.

Announcements in 2019 of new investment Fort Worth market came from local companies such as Ben E. Keith as well as newcomers such as Stanley Black and Decker and Decker, Mid States Distributing and Panoramic Doors, said Chris Strayer, executive vice president of economic development for the Fort Worth Chamber.

“Since January 2018, the chamber’s economic development efforts have helped create 1,682 existing business jobs and 1,380 new attraction jobs above the county average wage ($53,000 annually) – both of which are ahead of schedule for our four-year strategic plan,” Strayer said.

While 70 percent of the local project pipeline is made up of industrial prospects, office prospects in the pipeline are continuing to grow from only a few in 2018 when the strategic plan was implemented to more than 20.

The opening of landmark facilities such as American Airlines’ new headquarters and the resplendent Dickies Arena as well as establishment of iter8, a healthcare innovation and entrepreneurial initiative helped make 2019 “busy and eventful,” said Robert Sturns, director of economic development for the city of Fort Worth.

The arena has become a boon to hospitality and tourism, resulting in the development of several new hotels in downtown Fort Worth and setting the groundwork for the redevelopment of the Tarrant County Convention Center and a convention center hotel, Sturns said,

Beyond tourism and hospitality, Fort Worth, now the nation’s 13th largest city, also enjoyed remarkable success in attracting new businesses and growing existing businesses through its strategic plan initiative.

In 2019, the city announced six new recruitment or expansion projects, with an investment value of nearly $300 million and the creation of 2,300 jobs paying at least $44,000 a year, Sturns said.

“We implemented new policies to continue growth in our job centers such as downtown and the Alliance area but also worked to focus on areas that have not experienced some of the significant private investment we have seen across the (rest of) the city,” Sturns said.

The one area that continues to lag is the recruitment of Fortune 1000 corporate headquarters to Fort Worth but a new marketing and messaging campaign by the chamber and organizations such as the Fort Worth Chamber and Visit Fort Worth will work to improve that, Sturns said.

A critical factor driving growth and new development is cost, which is determined by the price and materials and wages for skilled workers.

During 2019, there was volatility in constructions costs, with materials costs rising and then falling, according to Chad Prochaska, director of preconstruction for The Beck Group.

“Most notably in 2019, the residential market was extremely volatile,” he said. We saw soft woods such as lumber and gypsum products drop dramatically throughout the year, whereas concrete remained steady in cost and steel often felt the prices went up or down because of a tariff that may or may not happen.”

Yet, demand was strong and commercial real estate development was strong with the Dallas-Fort Worth region being among the top six nationally for real estate investment, Prochaska said.

The outlook for 2020 is similar to 2019 although materials costs are predicted to remain steady. The biggest challenge will be labor costs, which increased 6 to 7 percent in 2019 and are expected to rise again in 2020 due to an ongoing shortage of skilled workers.

The labor market is extremely volatile because of high demand from companies that want to locate here and the inadequate supply of workers.

“We saw this in 2019 and we will continue to see this in 2020,” Prochaska said. “Availability is not where it needs to be. So we need to recruit and retain and pay our workers to be there when it’s necessary.”

Despite labor shortages, the Dallas-Fort Worth industrial market has another record-breaking year in 2019, with the overall market in second place in the nation. Ten years ago, DFW was the fifth largest industrial market at about 700 million square feet.

“As of the end of last year, we’ve advanced to the second spot behind Chicago at 1.3 billion square feet,” said Tony Crème, senior vice president for Hillwood. “We’re at 951 million square feet. In 2020, we’re entering a one billion square foot market, which is a huge milestone for Dallas-Fort Worth.”

In 2019, industrial construction in DFW accounted for about 5 percent of the U.S. market with 27.4 million square feet.

“We’ve led America for the last six years in this category so we’re just continuing very, very aggressive development,” Crème said. The DFW market also led the country in absorption at about 15 percent and vacancy rate remained at 6.5 percent, below the national average of 8 percent.

Last year, Tarrant County accounted for about one-third, 36.4 percent, of the industrial inventory in the DFW market, except for construction, which was about 50 percent of the whole market, largely due to the industrial building boom in the Alliance area, Crème said. Absorption was about 42 percent in Tarrant County and the vacancy rate was about 6.3 percent.

Many big dealers occurred in 2019 with third-party logistics providers, national retailers, and consumer packaged goods firms choosing Tarrant County for their operations.

At the end of 2019, there was about 9.4 million feet under construction in the Alliance corridor, exceeding the amount in major U.S. markets such as Philadelphia, Los Angeles and Seattle.

“One sub-market in Tarrant County has more infrastructure than some of the major markets across the country,” Crème said. “So just tremendous growth up in the North Fort Worth/Alliance area.”

South Fort Worth also had a banner year in 2019. At the end of the year there was s 1,600 acres of land under developer control, which could yield about 30 million square feet of industrial buildings, Crème said.

Top Tarrant County deals in 2019 include Callaway Golf Company leasing 783,465 square feet and CTDI leasing 705,600 square feet in Alliance; WestRock leasing a 362,000 square foot rail-served building in Railhead; and Emergent Cold leasing the new 300,000 square foot DFW ColdSpot in South Fort Worth.

The DFW multi-family market also led the nation in several key categories, including apartment completions, number of 20- to 34-year olds added to the market and five-year growth and population forecast.

There were 24,800 apartments completed in DFW during 2019, according to Drew Kile, senior managing director for Institutional Property Advisors, a Marcus & Millichap Company. While that number is expected to drop to about 21,000 in 2020, DFW is predicted to again lead Texas and the nation due to the extraordinary numbers of 20- to 34-year-olds.

Kile said 72.4 percent of this age group are renters, translating to 104,000 potential renters from this age group alone in DFW.

Other high growth rental markets include Houston, Austin, Phoenix, Las Vegas, Denver, Salt Lake City and Charlotte. Meanwhile, cities such as New York, Los Angeles and Chicago are seeing negatives changes as young adults are leaving those places for high growth cities that are more affordable and offer more employment opportunities, Kile said.

As homebuying has become more expensive, renting has becoming the more affordable option for many people, and especially young people, he said. The national average for rental expense of household income is 26.1 percent compared to 19 percent in the DFW area.

Overall, DFW has been a top market for multi-family investment because of the “numbers are amazing,” Kile said.

“This is over the last five years: 105 000 units delivered; 100 000 units absorbed; rent growth of 5.5 percent; Class A rent growth of 4.3 percent; young adult population growth over the last five years, 10 percent,” he said.

The Fort Worth sub-market also performed well in 2019 with the overall occupancy at about 95 percent and rent increases in the Fort Worth area averaging 12 percent for refurbished units. Overall rent growth in Fort Worth was at about 4.5 percent.

Fort Worth’s office market celebrated a strong year in 2019 with gains in occupancy and absorption, said Matt Montague, senior vice president for JLL. Fort Worth ranked ninth in the U.S. in absorption, besting Dallas in this category, he said.

“If we take out the downtown market and look only at our suburban market, we ere number three in the country for a absorption,” he said, trailing only Austin and Silicon Valley.

Other highlights of 2019 include more than 1 million square feet net absorption for the second consecutive year, year-over-year rent growth for the fifth consecutive year, vacancies were at a 10-year low; solid showing for downtown office activity; and multiple announcements of corporate relocations, particularly in the booming Alliance corridor.

Also, last year saw total occupancy at 84.6 percent, up 2.4 percent from 2018; and inventory grew slightly to 34 million square feet. Asking rent also grew slightly to $24.61 per square foot, Montague said. Also 280,000 square feet of inventory was completed and 346,661 square feet was under construction.

The most noteworthy office activity occurred in the Alliance corridor, which is the smallest sub-market by square-footage but the “most active and impactful sub-market” over the past two years,” Montague said.

“There is a huge potential in North Fort Worth from an office perspective,” Montague said. “Just Hillwood alone, not the whole Fort Worth market, has the potential to deliver 50 million square feet of office space, which is nearly double the nearest sub-market (downtown).”

But downtown was also an active market in 2019 and hit a new watermark with the average asking rent for Class A space increasing to more than $31 a square foot.

“At the end of the year, Encore signed a lease for almost 200,000 square feet at 777 Main St.,” Montague said. “It’s one of the largest leases in the a decade downtown.”

The Fort Worth retail market continued to undergo changes and grow in 2019, according to Jessica Miller Essl, co-president of M2G Ventures.

Among the highlights, expansion of online retailing, new developments brought together more office and retail outlets and redevelopment of traditional retail sites with new focuses.

“For the most part, we really saw absorption of supply that had come on over the last few years.,” Essl said, noting that 100 stores were absorbed across shopping centers in six major districts in the past two years.. This past year, about 80 stores were absorbed last year in the major shopping areas.

Looking ahead, 2020 will see those major shopping areas will flip to “some really urban development that I think is going to put us on the map even more,” she said.

“Occupancy is at an all time high for DFW this year,” she said. “Most of the projects, retail projects, you’ll see are over 90 percent occupancy so we’re in a really healthy market.”

Other predictions for 2020 will make it a year of “breaking all the rules,” Essl said. For instance, a new collaboration with result in department stores such as Macy’s and JCPenney’s selling used clothing for the first time.

Locally, more stores will continue to open in 2019, increasing absorption in centers such as Clearfork, which is 90 percent leased, as well as WestBend and Wateside.

New retail stores opened in 2019 and more will come in 2020 in the West Seventh and Crockett Row areas as well as the Foundry District, which will add food and entertainment venues this year.

Also poised for retail growth and expansion are Southside, Near Southside and Sundance Square downtown, Essl said.

And, finally 2020 brings the opening of the first stores and restaurants in Mule Alley in the Fort Worth Stockyards, moving it toward becoming “one of the most unique projects you’re going to see across the country in terms of quality and focus.”

Here are some excerpts from the presentations in the slideshow attached.

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