Foundations: Spring 2016

A baseline for the region’s future



DISPELLING THE MYTHS — MILLENNIALS IN SUBURBAN DALLAS

Much has been written about the influential role millennials play in business and real estate decisions, along with shopping and housing trends. One comment that often crops up is the generation’s preference for living in urban locations that are close to restaurants and entertainment venues. And that’s very true, says Walt Bialas, vice president and market research director at JLL. Uptown alone is home to 36,100 millennials (ages 25-34 years), or 27.5 percent of the submarket’s population base.

But don’t discount the impact of millennials on suburban markets. Las Colinas, for example, is home to 50,400 millennials, or 19.1 percent of the population base. And the red-hot Legacy region is home to 25,500 millennials, or 14.7 percent of all residents.

“I believe there are two drivers here,” Bialas says. “First, people often choose to live close to work. So, it does not surprise me that Legacy has a high concentration of millennials—after all, jobs here are plentiful and growing and represent some of the strongest companies in DFW. Add to that, the northern suburbs are a local hot spot for tech workers, and you have the key ingredients driving these numbers.”

All told, there are nearly 1 million millennials in Dallas-Fort Worth. And they have money to spend. Younger adults living in the Legacy region have an average household income of $86,000, which is 28 percent higher than the DFW average, JLL reports. The average household income for millennials in Las Colinas is $60,600 and $79,300 in Uptown.

 


 

MULTIFAMILY DRIVING DEVELOPMENT IN DALLAS

The cranes are out in full force across North Texas, with development buoyed by both population and jobs growth. Although Dallas proper has always been a strong office and retail market, at this point in the cycle, the multifamily sector is driving the city’s development boom. 

New statistics from JLL show that multifamily construction has set a blazing pace in the core of Dallas, with more than 10,000 units currently underway. 

Developers in other sectors are busy, too. Office construction in Dallas is humming along, JLL reports, with 1.6 million square feet currently underway. Including soon-to-break-ground projects, this will add another 15,000 employees to the local job base and help create demand for the 500,000 square feet of retail development that’s in the pipeline.

 


 

FORBES NAMES DFW A “BUILDING BOOM TOWN”

Greater Houston suffered a 49 percent drop in construction starts last year, a victim of the downturn in the oil industry. But North Texas, which has a much more diverse economy, continues to thrive. Dallas-Fort Worth ranked No. 2 on Forbes’ annual “Building Boom Towns” list, which counts down U.S. metro areas that are seeing the most new construction.

DFW finished 2015 with $17.8 billion in new project starts. This is $1.2 billion more than Houston, which ranked No. 3, and represents a 19 percent improvement (in dollar values) over 2014. DFW was second only to the much-larger New York City market.

As the state’s financial center and regional logistics hub, Dallas is more closely tied to national and regional economic factors than the price of crude, Forbes reported. The magazine’s study, which was performed by Dodge Data, tallied the dollar value of construction starts (breaking ground and actually beginning work) for single- and multifamily residences; office, retail, industrial, and healthcare facilities; and educational and research facilities, among others. It did not include money spent on public works projects such as bridges, streets, and parks. The value is defined as the cost to build a project when construction begins, and does not include the land value or the cost of acquisition.

 


 

REAL ESTATE INVESTORS FAVOR DFW FOR 2015 BUYS

Last year was a big year for commercial property trades in North Texas, and the market should see plenty of action in 2016, too. That’s the word from CBRE, whose Americas Investor Intentions Survey names Dallas-Fort Worth the country’s No. 3 target market this year, behind Los Angeles (No. 1) and New York City (No. 2).

According to CBRE’s study, the majority of real estate investors in the Americas intend to ramp up their buys in 2016, despite economic and capital markets uncertainties. Sixty-five percent of investors intend to be net buyers, up from 60 percent in 2015, with the vast majority (81 percent) intending to maintain or increase buying activity this year.

Chris Hipps, managing director of investor services for CBRE, says North Texas’ diverse economic strength adds to its appeal. “DFW is attracting a broader pool of talent and experiencing a surge in both infill and suburban urbanization,” he says. “Plus, we’re still viewed as a market where comparatively good returns can be achieved. All of this combines to attract a deeper class of private equity and institutional investors.”

The CBRE study also found:

Among the five different investment types—core, secondary, value-add, opportunistic, and distressed—value-add remains the preferred strategy (40 percent). The preference for value-add declined in the 2016 survey, while the preference for core (second highest) rose, indicating some reversion to a more conservative strategy. Similarly, investors’ risk for secondary (non-core) assets edged down.

Multifamily (28 percent) is the most attractive property type to investors in 2016, replacing the industrial sector, which was last year’s favorite. Office (24 percent) and industrial (23 percent) came in almost tied for second. Retail (17 percent) still lags behind the other sectors, but this percentage reflects a slight strengthening in preference from 2015.

 


 

AUTO INDUSTRY GROWTH DRIVING DEMAND FOR CRANE-SERVED BUILDINGS

With national vacancy for crane-served buildings at a scarce 10 percent and auto sales hitting record highs, automakers and their suppliers are driving absorption of crane-served facilities. These specialized buildings feature massive overhead bridge cranes to maneuver heavy materials or large, unwieldy products.

Texas is among those seeing absorption of these type of facilities, along with Michigan, Missouri, South Carolina, Georgia, Tennessee, Alabama, Mississippi, and Kentucky, according to Steve Kozarits of Transwestern. The Lone Star State’s inventory of crane-served facilities falls into the 11 percent to 20 percent range.

A record-breaking 17.39 million automobiles were sold in the United States during 2015, surpassing the 17.35 million mark set in 2000.

 


 

CO-WORKING SPACES: NOT JUST FOR STARTUPS ANYMORE

The demand for co-working space is expected to continue to rise in 2016 as more companies are moving in to these types of facilities. That’s the word from CBRE, which recently released a research report on the topic.

In an occupier survey, 40 percent of respondents said they are using or are considering using shared space, including co-working space. Although these types of spaces have typically appealed more to startups and freelance workers, large enterprises are beginning to move in as well.

Co-working spaces—typically updated versions of executive suites in which tenants share workstations and amenities—can present opportunities, especially as companies venture into new markets. Demand is driven in part by the flexibility of the model—and lower costs, as average office asking rents have been on the rise.

The trend also is sparking an interest among landlords seeking to reposition older office facilities. Locally, this is occurring in the West End, where Goff Partners and Granite Properties are reinventing historic properties, and in the downtown core, with landlords like Woods Capital are leveraging opportunities in downtown towers like Thanksgiving Tower and One Dallas Center.

According to CBRE’s report, the increasingly diverse demand from occupiers and landlords suggests the co-working sector is better equipped to withstand a downturn than it was during the dot-com bust and the subsequent recession.

“Innovations and growth in the segment are tied to a number of enduring megatrends that are shaping workplaces and the business environment more broadly,” says Julie Whelan, Americas head of occupier research, CBRE.