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Dallas: The Second Hottest Commercial Market in the Nation
July 26, 2021

Dallas: The Second Hottest Commercial Market in the Nation

by The CE Shop Team

The Big D’s Commercial Real Estate Scene Has Big Things Coming

CBRE, the world’s largest commercial real estate services, and investment firm, has released the results of their survey that asked commercial real estate investors to rank their top choices for investment prospects in 2021. This year, the Dallas-Fort Worth area has ranked second for investment prospects in 2021, trailing gently behind Austin.

CBRE reported that markets such as Dallas-Fort Worth and Austin “will see intense competition for good-quality assets from all types of investors.”

Let’s break down the national outlook for CRE this year before exploring just what makes Dallas so attractive for commercial real estate opportunities.

2021’s Commercial Real Estate Outlook 

As retail, hotels, and office space prices declined 5–10% over the last year, industrial sectors, data centers, life-science spaces, and rentals all have increased in value. Demand has transitioned to these areas as remote work, travel, and tourism have influenced the current commercial real estate market in the aftermath of the COVID-19 pandemic.

According to the National Association of REALTORS®, properties or portfolios of at least $2.5 million fell 28% year-over-year in the first quarter of 2021, with declines across all property types except for hotels. Across the country, commercial real estate is slow to make a comeback as reopening unfolds carefully market to market.

"The top commercial real estate markets that are expected to outperform the rest of the nation are generally affordable and able to draw new residents with a greater flexibility to work from home," said NAR's Chief Economist Lawrence Yun

With this information in mind, let’s explore what sets Dallas apart as a top commercial real estate market in 2021.

Dallas’ Commercial Market Appeal

For the first time in the history of the CBRE survey, big-time investors (those who manage assets of more than $50 billion) preferred secondary markets like Austin and Dallas-Fort Worth over primary markets like New York City and San Francisco. Additionally, commercial real estate services company JLL named Dallas a “rising star” city for investment in the U.S. But why?

“Strong economic fundamentals driving rent growth are the number one factor for market preference in 2021,” said Chris Ludeman, Global President of Capital Markets for CBRE regarding the survey results. “The metros most favored by investors this year were buoyed by proven labor market resilience during the pandemic and a steady growth outlook. Remote working has also boosted labor migration to relatively low-cost markets with well-developed suburbs.”

Simply put, the Dallas-Fort Forth’s strong population growth, vibrant economy, pro-business environment, and Texas’ lack of state income/corporate taxes have combined to make the market a top choice for institutional and individual investors, both domestic and foreign. 

Investors have set their sights on growth markets (i.e., markets with rising populations and plenty of investment opportunities as a result), and Dallas’ population boom hasn’t gone unnoticed. The Dallas metro area led the country in nominal population growth in 2020, adding 120,000 residents between 2019 and 2020, according to the U.S. Census Bureau. 

Source: CoStar

And that growth isn’t likely to stop, according to a recent study from Cushman and Wakefield. 

The DFW market may well lead the nation again this decade in population growth, as it‘s projected to add another 1.39 million people to its population between 2020 and 2029. 

Not only is the population booming, but job opportunities abound as well. Employment in the Dallas-Fort area increased by 260,200 jobs over the year in May, the U.S. Bureau of Labor Statistics reported. The leisure and hospitality sector grew the most, up 81,000 jobs, with accommodation and food services taking the largest share of jobs gained within this sector. 

Over-the-year Net Change for Industry Supersector Employment in the Dallas Metropolitan Area, May 2021

Source: U.S. Bureau of Labor Statistics

And the good news doesn’t end there. This migration of new residents combined with a growing economy has many companies re-evaluating their home base. In fact, 102 major corporations are considering moving their headquarters to North Texas. Notable move announcements in the last year to date include:

  • Tesla
  • Hewlett Packard Enterprise
  • CBRE
  • Lion Real Estate Group
  • Firehawk Aerospace

The fact that more companies are looking to relocate to North Texas now than before the pandemic speaks to the wealth of potential brewing in markets like Dallas. Moving an entire headquarters is no easy undertaking, after all.

"It's rare for a company to move out of a location they've been in a long time. It's very costly. It's very disruptive to the business. It comes with a host of other decisions you have to make. It's considered very, very carefully," said Kenny McDonald, the board vice-chair of the International Economic Development Council, in a 2019 interview with U.S. News regarding companies heading down south to Texas. Clearly, D-Town must be worth the consideration - and the investment.

Dallas’ commercial market outlook is bright, and it’s projected to only get better. For investors looking for a slice of this pie, now is the time to invest in the Big D.

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