After a year of volatile oil prices, the commercial real estate fallout in energy markets is mixed across North America and by property type, but fears about widespread adverse impacts have not been realized, according to a new report from CBRE Group Inc. For Dallas-Fort Worth the impact has been minimal, as commercial real estate fundamentals in the market have shown pervasive strength.
“The collapse in crude oil prices that began a little over a year ago brought uncertainty, speculation and a negative outlook to key energy markets and how the pricing outlook might affect commercial real estate,” said Robert C. Kramp, director of research and analysis, CBRE. “Even though crude oil prices are expected to remain low for the foreseeable future, Dallas-Fort Worth’s vibrant commercial real estate performance demonstrates how the state is well hedged against the energy downturn.”
According to the report, year-to-date absorption is almost unprecedented in both the office and industrial sectors in DFW, retail occupancy continues to chart record highs, and sustained in-migration growth has supported strong multifamily momentum across the metro area.
The Metroplex benefits from a diverse economy and consistently robust employment growth, both of which have insulated the region from adverse effects from oil price volatility.
“Given the diverse industry base of Dallas-Fort Worth and the energy sector’s 1.1 percent share of metro employment, any economic impact from low oil prices is expected to be marginal on a local level,” said Michael Caffey, executive managing director for the Texas Region of CBRE. “We’re seeing minimal effects on commercial real estate occupancy as our region looks to other industries like finance, insurance, wholesale trade and transportation for growth. Above-average population growth should continue to sustain momentum in the housing market, which will also benefit overall growth and help secure the region’s continued status as an expanding market.”
Energy-related companies within Dallas-Fort Worth are predominantly located in the Fort Worth CBD, where approximately 10 percent of the office base is occupied by oil and gas tenants. DFW is widely known for its business-friendly environment and critical mass of corporate headquarters spanning an array of office-using industries outside of oil and gas. Growth in the professional and business services and financial activities employment sectors has propelled office leasing activity, and will continue to do so as major relocations and expansions, including Toyota, Liberty Mutual, State Farm and Real Page bring even more attention to the region from other company prospects.
Although second quarter occupancy was down by 100 to 380 basis points (bps) from a year earlier in other energy markets (Calgary, Houston and Pittsburgh), occupancy was up by 75 bps in DFW.
Growth in e-commerce and consumer goods has been the key driver in Dallas-Fort Worth’s industrial landscape, and these sectors have been aided by the reduced shipping costs that have resulted from lower fuel prices.
While vacancy has begun to level off in Dallas-Fort Worth, it is a result of increasing speculative construction, rather than a product of oil and gas-related instability.
Dallas, Denver and Houston are three of the five most active markets for apartment completions in the past 12 months—together accounting for 27,000 units. Apartment fundamentals in Houston have retreated slightly, with a year-over-year vacancy increase of 10 bps and still-positive but below-average rent growth. Outside of Denver and Dallas-Fort Worth, annual apartment rent growth in energy markets was below average in Q2 2015. But in Dallas, apartment fundamentals have seen no erosion as a result of volatility in the oil market, nor is this expected to become an issue, given the strong absorption trends and positive rent growth forecasts for the Metroplex.
Aggressive expansion of the job base will continue to fuel renter demand as Dallas-Fort Worth is projected to add 13.6 percent to the job base through 2019, according to Moody’s Analytics.
So far in 2015, the Dallas and Fort Worth CBDs have seen sales volume decline from 2014, which was notably higher than previous years. In December 2014, the rolling 12-month sales volume surpassed $800 million – a level not reached since Q2 2008. Since Q2 2014, the cores of both North Texas cities have seen a shift from institutional to private buyers.
Overall, the fall in oil prices has had no effect on the Dallas-Fort Worth hospitality market. Annual increases in revenue per available room are expected to reach 9.0 percent in Dallas and 6.5 percent in Fort Worth for 2015, exceeding the long-term averages (since 1988) of 3.4 percent and 3.9 percent, respectively, according to PKF Research, a CBRE company. – from a CBRE news release