Downtown Fort Worth is leading Downtown Dallas in walk-able urban development and Fort Worth started first.
– Christopher Leinberger, Center for Real Estate and Urban Analysis at George Washington University
Economic growth, marked by milestone accomplishments such as the long-anticipated launch of TEXRail, made 2018 as another prosperous year for Fort Worth and Tarrant County.
Projections for continued economic growth are good as the population continues to grow and unemployment remains low, driving demand for construction of new residences, office buildings and warehouse space for storing manufactured goods and parts, according to industry experts speaking Jan. 23 at the 2019 Tarrant County Commercial Real Estate Forecast hosted by the Real Estate Council of Greater Fort Worth.
Looking back at 2018 and making predictions for 2019, experts said the economic outlook is strong for 2019 although there will be some slowdown in some sectors as the new development is absorbed and a worsening labor shortage, along with other challenges, beg for solutions.
Brandom Gengelbach, executive vice president of economic development for the Fort Worth Chamber of Commerce, and Robert Sturns, director of economic development for the City of Fort Worth, said efforts begun in 2018 to implement the recommendations in separate economic development plans released in 2017, which include increasing corporation relocations.
But translating strategy on paper to progress in reality is another matter, Gengelbach said.
“The Dallas-Fort Worth region has 14 cities with over 100,000 population and each of these communities are vying for economic development projects,” Sturns said. “I’m not sure there is a more competitive area in the country.”
Incentives can be a useful tool for landing economic development projects and corporate relocations but factors such as a strong workforce, transportation and available land are even more important, he said.
“At the end of the day, no amount of incentives will make up for a poor site or unavailable workforce,” Sturns said.
But one area where Fort Worth earns high marks is in walkable urban development, which is where much and maybe most future economic growth and development will occur nationally and in Dallas-Fort Worth, according to Christopher Leinberger of the Center for Real Estate and Urban Analysis at George Washington University in Washington, D.C., keynote speaker of the Forecast.
“Downtown Fort Worth is leading Downtown Dallas in walkable urban development and Fort Worth started first,” Leinberger said.
Locations such as Sundance Square and the Near Southside are flourishing because of their walkability, favored by the “growing millennial generation and companies hoping to attract s knowledge-economy workforce,” he said.
Millennials are also a reckoning force in retail growth and multi-family development.
Multi-family development has fallen off a bit since 30,000 new multi-family units were added in the Dallas-Fort Worth market in 2017. This year, 28,400 units are expected to become available, up from 26,000 in 2018.
“The market absorbed 24,500 of those 26,000 units,” said Drew Kile, senior director at Institutional Property Advisors, a multi-family brokerage division of Marcus & Millchap.
Looking further out, Kile said 2019 could be the peak and multifamily construction will begin to slow.
“We expect next year (2020) to fall back to about 24,000 units and for 2021, probably even more, 17 [to] 18,000 units being delivered in multifamily and that’s OK,” Kile said. “We’ve got a little room at the top that we need to absorb and it’s not going to be a function of the sky falling in our world.”
Despite rent spikes, apartments remain an attractive option for millennials, given the higher cost of home buying, coupled with interest rates creeping up, and millennial preference for denser, urban environments, he said.
“Fort Worth is doing about as much as Austin in job and population growth,” he said, but it is not getting the same attention.
With the average renter being in the 20- to 34-year old age range across DFW, and nearly 150,000 people moving to the area per year, there is a probability of 70 percent likely to rent. That translates to 105,000 new renters per year for the area.
For the Fort Worth side, the potential is 35,000 new renters per year, Kile said.
Retail growth has been a scattershot with 2019 predicted to be a year of stabilizing and settling into the “new normal,” which is “nothing is normal,” said Jessica Miller, co-president of M2G Ventures.
As traditional retailing and shopping malls continue their descent, and more national brands such as Sears have gone bankrupt, retail continues to reinvent and change.
Brick-and-mortar stores are finding a niche in Fort Worth, particularly those that appeal to millennials. Eight new coffee shops opened in 2018 with three more openings planned in 2019, not including Starbucks, Miller said.
Also last year, there was a lot of absorption of brick-and-mortar retail space.
“We absorbed 100-plus stores in 2018, and before that, we absorbed 115 in 2017,” Miller said. “We’re going to absorb again, almost 100 stores; this is just in your major specialty areas, not counting neighborhood centers.
“This is a lot but what it says to me, too, is we’re at our highest (absorption) for retail in the past three decades,” she said.
Trends going forward include more pop-up stores, and collaborations resulting in partnerships among brands like Macy’s and Facebook and Walgreens and Birch Box, bringing new presence to the brick-and-mortar shopping.
Brick-and-mortar shopping will also continue to change and evolve in response to millennial desires for “experience” outings.
“They want to be able to go and do their yoga, and walk around, and have coffee,” Miller said. “They want their own little innovation center that may not feel quite like a Near Southside or the Cultural District but it does feel like their own little area.”
In other areas of commercial real estate, industrial remains the “champion” and is “very, very active,” said Tony Crème, senior vice president at Hillwood.
The DFW market completed nearly 26.2 million square feet of new industrial space last year. The Tarrant County area accounts for about 37 percent of the total DFW industrial inventory and was had more than one-third of the 25.3 million square feet under construction in the region at the end of 2018.
“The Tarrant County market was extremely active in 2018, and we see this momentum continuing into 2019,” Crème said.
Because of population growth, demand for industrial space remains in high demand.
In a recent report from Workforce Solutions on population growth, Tarrant County grew by 170,000 people in the past five years and is expected to grow by 130,000 people during the next five.
“These people need household goods, consumer products, building products, food, all of these being used everyday,” Crème said. That requires a lot more warehouse space.
Crème said it’s possible that industrial will dip slightly in 2019 because of tightening land supply, resulting in higher cost. But larger deals, of 2 million square feet and more, are in the picture. If that does happen, the vacancy rate will dip below 6 percent, “which is a very healthy” statistic, Crème said.
In the office market, 2018 was the year of absorption of inventory, with Fort Worth ranking seventh out of the 52 markets across the country that JLL tracks, according to Matt Montague, vice president of JLL.
“We’re up 260 percent on absorption from our 10-year average and up 70 percent year-over-year from last year,” Montague said. “We absorbed almost 1 million square feet of office product in Tarrant County.
“We really had a low amount of new product entering the market in the last few years,” he said. “And so we were really due for some strong absorption and some stabilization in the marketplace.”
Rent growth was also strong, up 10 percent last year compared to 2017.
Going forward, one of the biggest trends in the office market is flexible space for co-working. By 2030, about 30 percent of the national office market will be in that type of space. That presents a potential for Fort Worth but it probably won’t match that trend, Montague said.
Absorption will again dominate the market in 2019 along with relocations in both downtown and suburban areas, possibly moving the Tarrant County market to an all-time low in vacancy.
The most high-profile office market change in 2018 was XTO’s completion of the disposing of its downtown office buildings.
“Overall, it was a very, very soft landing for Fort Worth,” Montague said.
As for relocations, “hopefully one downtown and two-to-three potentially in North Fort Worth and Alliance. And definitely continued growth from our creative and entrepreneurs,” he said.
Despite the upbeat predictions of growth in 2019, construction activity is expected to level off and remain flat.
“There will still be positive growth,” said Scot Bennett, regional director of The Beck Group’s Fort Worth office, overseeing architecture and construction divisions. “But the rate at which the growth occurs will not increase as significantly as we’ve seen in the past years.”
According to multiple authorities, Bennett said a slowdown is expected at some point.
“We’re in the second largest period of economic expansion since 1964,” he said. The question is when and how will it affect Fort Worth.”
Some of the biggest challenges are escalating construction costs and a critical labor shortage, particularly in the skill areas of concrete, electrical and masonry.
“We know the market will cycle,” Bennett said. “We’re in one of the best locations in the nation and signs of continued growth are there.”