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.
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.
Keep the Dallas Observer Free... Since we started the Dallas Observer, it has been defined as the free, independent voice of Dallas, and we would like to keep it that way. Offering our readers free access to incisive coverage of local news, food and culture. Producing stories on everything from political scandals to the hottest new bands, with gutsy reporting, stylish writing, and staffers who've won everything from the Society of Professional Journalists' Sigma Delta Chi feature-writing award to the Casey Medal for Meritorious Journalism. But with local journalism's existence under siege and advertising revenue setbacks having a larger impact, it is important now more than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" membership program, allowing us to keep covering Dallas with no paywalls.