North Texas commercial property market sees slow rebound from pandemic
The direct collision between commercial real estate and COVID-19 has spawned winners and losers.
The demand for industrial buildings in North Texas is higher than ever. And for the most part, the lessors of apartments keep the rental units almost full. But the hotel business has suffered catastrophic declines, and mall owners are struggling to keep renters in business.
Office building owners who saw workers drive home during the pandemic are trying to figure out what life will be like after COVID-19.
“Obviously, the industry is chugging for obvious reasons,” said Goodwin Advisors’ economist Walter Bialas. “Multi-families are also doing well because people have to live somewhere.
“Uncertainty permeates the other major types of property,” said Bialas. “Accommodation and retail are still very concerned.”
Hotel sales in the D-FW area fell by 52% in the third quarter compared to the previous year.
And retailers and restaurants are closing their doors while customers stay away from the pandemic and move their business online.
With nearly 60% of office workers in North Texas still working from home, office building owners are struggling to determine what will bring in 2021.
In the first nine months of 2020, the Dallas area’s net rental decreased approximately 4.4 million square feet. This is the biggest drop in office rents since the 1980s property crash.
Many employers do not yet know how much office space they will need after the pandemic.
“I think the advice many office users are getting not to overreact now is good,” said Bialas. “Although it will take a while for this to settle down, it will eventually be.
“Then better decisions can be made.”
Byron Carlock, head of US real estate practice at PriceWaterhouseCoopers, says he has already noticed a shift in attitudes towards office space
Already in the spring, almost 70% of the companies stated that they needed far less office space after the pandemic.
“In our most recent Pulse poll, where we’re trying to gauge the mood of the C-suite, 51% say they may need more office space if they’re going to get it right,” said Carlock. “That was a surprising statistic for us.”
Employers who have blocked workers in high density offices are rethinking their workplace design.
Carlock said work-from-home is not a long-term option.
“It’s wearing – there is screen fatigue,” he said. “People are ready for a certain socialization.”
So far, the commercial real estate market in North Texas has developed better than in many other metropolitan areas.
The D-FW area led the country in total commercial real estate transactions for the first eleven months of 2020.
Total commercial investments in the region totaled $ 15.4 billion – more than Los Angeles and New York – even if transactions were down 28% year-over-year.
In the first 10 months of 2020, construction outside of residential areas in North Texas was down 14% from the same period last year as fewer new office, hotel and retail starts began.
“D-FW continues to be the # 1 corporate move location despite the fact that Austin is making so many headlines right now,” said Carlock. “You have so much activity in Dallas.
“And as a larger market, D-FW has more opportunities to take in people from the high tax areas.”
Most commercial real estate forecasts predict a slow recovery over the next year.
“Economically, Texas is generally doing better today than many other places, and its business advantages are not fading, so offices can be up and running faster,” said Jeanette Rice, economist with commercial real estate firm CBRE. “But 2021 will still be a tough year.”
Rice said most employers are expected to move to a three-day office work model as the pandemic subsides.
“Our research also concludes that many companies are canceling extensions,” she said. “In addition to the effects of the recession, office demand is likely to decline somewhat due to the greater flexibility in office use.”
Commercial real estate sectors in the D-FW area are all affected differently by COVID-19, said Rice.
“There are haves and nots,” said Rice. “Industrial never got the news that there was a recession.
“Apartment buildings show significant resilience,” she said. “The hospitality and retail sectors are badly affected and will take years to recover.”