Commercial Real Estate Market in DFW in 2018

A hot real estate market has helped lease up shopping centers throughout the DFW region, with over 90 percent occupancy rate. This is the second highest occupancy rate in more than three decades.

Bob Young, an executive managing director at Dallas-based Weitzman, which recently unveiled its 2018 Forecast Report for Texas, says “it wasn’t a fluke.” According to him, this was a well-executed plan by landlords and developers. Young told the Dallas Business Journal that “the retail environment is changing though it has been transitioning for decades.”

DFW is one of the top office development sites in the U.S. with over five million square feet of buildings under construction. The area is also one of the busiest office leasing markets, thanks to growing employment and flow of corporate moves to the area.

Here are five key trends that will continue in 2018:

1. Aging retail properties

Plano has older properties such as Collin Creek Mall which will continue to transform and redevelop. Despite a change in retail behavior at Collin Creek, the real estate is still strong making it ideal for property redevelopment. A good example is Plano’s Willow Bend Mall which was torn down to make way for restaurants, a new Crayola store, and office space. Other properties in North Texas are undergoing facelifts and redevelopments that cost millions of dollars to keep up with market trends and demand.

2. Grocers re-inventing themselves

Central Market and a few stores on the outskirts of North Texas have been H-E-B’s main player in the region. Despite their brand appeal, H-E-B shows no sign of joining the core Dallas market. In contrast, mainstay grocers such as Tom Thumb, Market Street, and Kroger have been innovating delivery methods to attract different customers.

3. Experience-centered retail

When Willow Bend Mall brought in a big Crayola store, and Stonebriar Mall in Frisco brought KidZania, both malls wanted to give their customers an experience they can’t get elsewhere. Barnes and Noble got creative with the new store at Legacy West, by adding a full food and bar concept to keep customers reading in the store’s four walls. They re-packaged themselves to add depth to the shopper’s experience.

4. Mixed-use developments

The result of a fast-growing population, adding jobs and rooftops to North Texas is the innovation of developers in delivering retail space. This means more mixed-use developments in urban markets, with street-level retail space to offer amenities and services to nearby residents. In 2017, mixed-use developments leased up 1 million square feet of retail shops and restaurants space. This is inclusive of big projects such as Legacy West.

5. E-commerce effects on DFW’s retail space

A part of the growing retail industry has provided retailers an opportunity to offer goods and services beyond brick-and-mortar locations via other distribution channels. This has challenged retailers to improve their game with products, brand loyalty, and customer base. North Texas is the choice for physical locations for online retailers such as Warby Parker, Bonobos, and Nantucket. Maybe Amazon is also looking at brick-and-mortar opportunities.

North Texas Office Builders Enjoying a Boom Time

Considering all fundamentals, there’s still a lot of interest in Dallas. The main takers are corporate headquarters relocations, back office, and regional office deals. The completion of big office developments for corporations such as JP Morgan Chase, Liberty Mutual, Toyota and State Farm Insurance have significantly affected the building pipeline in North Texas. Other planned developments include Charles Schwab, Mercedes-Benz, and Pioneer Natural Resources.

Despite the new developments, the number of speculative, multi-tenant office projects in D-F-W are fewer compared to previous years. According to Randy Cooper, vice chairman of Cushman & Wakefield’s Dallas office, developers now have financial responsibility experience, and lenders are not dishing out money easily.

New business tenants are now taking up millions of square feet of office space that was once occupied by JPMorgan Chase, Fannie Mae and State Farm who relocated to new buildings in Richardson and Plano.

Such moves are forcing landlords to make significant investments in older properties to upgrade them to standards that will retain current tenants and attract new ones. Most of these redevelopments have an emphasis on tenant amenities. According to DFW real estate agents, the market should expect such developments to continue throughout 2018.

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