Happy Days Are Near Again For DFW Market? So Insists National Retail Real-Estate Report.

An old friend of mine was kind enough to forward along the hot-off-the-presses Marcus & Millichap National Retail Report, the must-read amongst real-estaters; insists my pal of the mixed-to-optimistic forecast, it’s “a pretty thorough insight into the retail world.” In which case, by way of introduction: “Caution gradually gave way to more confidence toward the end of 2010 as consumers surprised to the upside in expenditures
and companies began to increase hiring.”

In Dallas-Fort Worth especially, says the report, which bumps up the market (out of 44 once-overed) five spots from last year’s No. 23 ranking, insisting that “Dallas/Fort Worth ranks third in employment growth for 2011.” Other positive signs: Spots left vacant by bankrupt big-boxes are being taken over by opportunistic chains seeking further expansion; rents should see an upswing following a couple of years in the southbound lane; and construction completion’s expect to rise while vacancies are on their way down. The entire DFW section follows.

Uneven Recovery in Dallas/Fort Worth
Retail Market; Central Submarkets to Lead

Dallas/Fort Worth will register some of the strongest employment
growth in the nation during 2011, and the vast majority of jobs lost
in 2008 and 2009 will be restored. With the economy building momentum
and construction holding at below-average levels, vacancy will
continue to retreat. This should set the stage for owners to implement rent
increases after two years of cutbacks. Most of the desirable locations left vacant
by bankrupt big-box retailers have already been re-leased by expanding
chains, such as buybuy Baby, Best Buy and PetSmart, which have taken
advantage of opportunities to pick up space in well-trafficked shopping
centers. At the same time, demand for anchor and in-line space in weaker
locations has languished. Fundamentals reflect these trends, with occupancy
in power centers back to levels last seen in 2007. Conditions in neighborhood/
community centers, on the other hand, remain soft, particularly in
outlying areas like West/Southwest Dallas, Northeast Dallas and Northeast
Fort Worth. As a recovery cycle unfolds over the next 18 to 24 months, improvements
in retail property operations will remain uneven, with higher quality
shopping centers in central submarkets leading the way.

Transaction velocity will rise as more bank-owned properties and stabilized
assets come to market and out-of-state investors return. Many developers
who held through the downturn will list properties as competition
intensifies for high-quality deals, particularly single-tenant assets occupied
by national chains. On average, full-service restaurant properties in the
Metroplex trade at cap rates in the 8.0 percent to 8.75 percent range, while
the most sought-after single-tenant properties, such as national drugstores,
change hands closer to 7.5 percent, provided they have signifi cant lease
terms remaining. Cap rates for stabilized infill multi-tenant properties will
remain relatively flat in 2011 at 9.0 percent to 9.5 percent; multi-tenant centers
in the suburbs trade closer to the high-10 percent range. While shopping
center demand will tick up, buyers will assume lower rents for leases
inked during the boom, weighing on pricing.

2011 Market Outlook

◆ 2011 NRI Rank: 18, Up 5 Places. The Metroplex improved five spots in
this year’s ranking due to strong employment gains and falling vacancy.

◆ Employment Forecast: Employers will create 77,000 jobs in 2011, a 2.7
percent increase. Last year, 41,000 positions were added.

◆ Construction Forecast: Developers will complete 2.1 million square feet
during 2011, up from 2010 but 63 percent below the five-year average.

◆ Vacancy Forecast: Retail vacancy will decline 40 basis points this year to
11.8 percent. In 2010, vacancy slipped 30 basis points.

◆ Rent Forecast: In 2011, asking rents will rise 1.8 percent to $15.49 per
square foot as effective rents increase 2.7 percent to $13.49 per square foot.

◆ Investment Forecast: Owners of properties proximate to distressed assets
and considering a sale may benefit by listing sooner rather than
later. When nearby troubled properties trade and new owners intensify
re-tenanting efforts, often at lower rates due to their costs, effective rents
and values in the area many times are affected.