ULI Fall Recap: Why Companies, Millennials and Foreign Capital are Relocating to this Cowboy Town

Tuesday, November 1, 2016

By HFF Real Estate Analyst Teddy Leatherman of HFF's Dallas office 

Dallas had the privilege of hosting the annual Urban Land Institute (ULI) Fall Meeting this year, and the city greeted 6,500 attendees with southern hospitality and showed them why Dallas earned the title of ULI’s Top Emerging Real Estate Market for 2016.

The fall meeting featured bike tours of the city; a night out at Pat Green’s bar, The Rustic; a fabulous opening reception at Klyde Warren Park, the winner of ULI’s Urban Open Space Award; and an intimate closing conversation with President George W. Bush.

Needless to say, all the out-of-towners were pleasantly surprised with this cowboy town, but what else would you expect? Everything’s bigger in Texas!

Prior to the ULI Fall Meeting, many investors had the misconception that Dallas is a mono-economy primarily supported by the energy sector. Based on information published by the Bureau of Labor Statistics, less than three percent of all jobs in the DFW Metro are in the mining, lodging, and construction category; the majority of DFW’s jobs come from trade and business services.

Dallas boasts one of the most diverse economies in the country and continues to support the many companies moving their headquarters to the lone-star state. Currently, there are 20 Fortune 500 companies headquartered in Dallas, and many more are considering a move. Toyota and State Farm announced their relocation to Dallas, with others to follow due to the tax incentives, low cost of living, central time zone, access to either coast and the highly-educated workforce.

"In spite of more than $38.9 billion being invested in Dallas-Fort Worth over the past 24 months, there is a sense most investors still don’t fully understand the diverse dynamics supporting the metroplex’s growth, and, therefore, the attractiveness of the local commercial property market,” said Jimmy Hinton, HFF Managing Director of Research.

The diverse and growing economy has greatly affected the commercial real estate market. Austin and Dallas topped the ULI emerging trends list this year, proving their diversification from the energy sector.

“The DFW retail market continues to thrive as the highly-diverse economy continues to draw new jobs and population growth to the area," said HFF Senior Managing Director Barry Brown, Co-Head of HFF's Retail Group. "Very strong absorption over the last five years has outpaced new supply, and retail occupancy exceed 95 percent, which should continue to stimulate rental rate growth.”

With the numerous corporate relocations, the DFW MSA is projected to add an additional 352,101 jobs from 2016 to 2020, and the population is expected to increase by 589,309 (Moody’s). DFW is projected to be the fastest growing MSA in terms of population and job growth for the next five years and boasts one of the youngest and most well-educated MSA’s in the country.

“Anyone attending the ULI Fall Meeting in Dallas had to leave town feeling extremely optimistic about the future of the Dallas office market and the Dallas market as a whole," said HFF Senior Managing Director Andrew Levy, Co-Head of HFF's Dallas office. "Virtually all news emanating from the meeting relative to the office market was extremely positive, including Dallas being named No. 2 for investment prospects by PWC’s Emerging Trends in Real Estate report and two significant announcements regarding major corporate expansion and relocation to our Downtown market. The headlines for the office market continue to be centered around corporate relocations to the city, robust job growth, economic diversification and a relatively modest development pipeline with significant pre-leasing in place. An emerging headline might also be the city’s newfound attractiveness to foreign investors with several landmark sales completed in 2016 to German, Israeli and Korean investors.” 

One question on investors’ minds was the thought of oversupply in the market place, mainly pertaining to the multifamily market with more than 50,000 units currently under construction.

“Dallas is the No. 1 emerging real estate market in the U.S. and the No. 2 fastest-growing metro in the U.S.," Bill Miller, HFF Senior Managing Director and Co-Head of HFF's Multi-Housing team commented. "These two facts alone are keeping DFW’s multi-housing market in a very healthy state. Yes, there are units under construction, but they are being absorbed at a robust pace with strong rental rates. DFW’s favorable demographic trends, along with the strength of the job market, is attracting the attention of investors both domestic and foreign who have historically focused on gateway markets on the West and East Coasts. Multifamily market fundamentals should remain strong over the next several years with new deliveries dropping off in 2018.”

“Refinancing and acquisition financing is plentiful for assets in Dallas, Texas," HFF Senior Managing Director Mona Carlton added. "Most capital sources, including life insurance companies, Fannie Mae, Freddie Mac and CMBS lenders are lending competitively in our market. Record-breaking job growth, coupled with Dallas’ diversified economy, is appealing to investment officers of lending institutions. Constructive financing, however, is more difficult to obtain. Banking regulatory requirements are forcing banks to be more selective regarding sponsors and projects on which they are willing to lend. Although construction financing is available, it is typically at lower leverage levels and higher credit spreads than seen in the past.”

Clearly Dallas is one of the top markets on lists for investors, companies and millennials. The abundance of jobs, low cost of living, easy access to either coast, no state or local income tax and the fact that Texas is a right to work state keeps "The Big D" the southern belle of the ball.

George W. concluded the meeting with these simple words: “Welcome to Dallas! If you don’t live here, you should.”

About Teddy Leatherman

Teddy Leatherman is a Real Estate Analyst in the Dallas office of HFF with more than four years of experience in real estate. She is primarily responsible for performing financial and market analysis, preparing offering documents and coordinating the due diligence process for the investment sales group. Ms. Leatherman joined the firm in February 2016. Prior to joining HFF, she worked for Pygmalion Inc., where she assisted in executive trainings to Fortune 500 companies focusing on public speaking and sales. Ms. Leatherman started her real estate career as a broker at Marcus & Millichap focused primarily on Texas student housing assets. She graduated with honors from the University of Southern California’s Marshall School of Business and was a member of Kappa Alpha Theta sorority.

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