Friday, February 13, 2009

Commercial property experts say Dallas-area market will weaken, then be one of the first to recover

There's no way to sugarcoat it – things are tough in the North Texas commercial real estate market and likely to worsen in 2009.

A combination of a dismal national economy and a freeze on lending has choked commercial property owners and lenders in most parts of the country.

"It is true that our economy is more diversified, new construction is minimal – except for retail – and current occupancies are reasonably healthy," said Gregory Fuller, chief operating officer for Plano-based Granite Properties. "But this downturn, unlike others, is touching every aspect of our economy, from consumer spending to manufacturing, autos, technology and, most of all, access to reasonable credit."

The Dallas Morning News recently polled Fuller and other North Texas real estate industry leaders about conditions in the commercial property market.

For the most part, these veteran real estate execs agree that conditions will probably deteriorate this year.

"The dearth of capital flows to the real estate market coupled with extreme caution by businesses will continue to challenge transactional activity and prices," said Jeff Swope, one of the founders of Champion Partners.

Still, real estate folks – who are famous optimists – are betting that Dallas will be one of the first markets to recover when the national economy turns around.

"In general, we should all be very happy to be in Dallas, Texas, in 2009, as we will outperform almost every other commercial real estate market in the country," said Jim Yoder of Jones Lang LaSalle. "We will continue to produce new jobs, albeit at a slower rate than in past years, and expect our vacancy and rental rates to hold steady or decline only slightly."

Developer Lucy Crow Billingsley is already planning for when the business shifts again and financial markets come back to life.

"This is the time in which great money will be made," she said.

Gregory P. Fuller, chief operating officer, Granite Properties Inc.: “The 2009 outlook for the commercial real estate sector has turned negative very quickly across the nation. Rents and occupancies at shopping centers and office buildings will suffer the most, but industrial buildings and apartments will not be immune from the downward trend. North Texas, contrary to last year’s popular opinion, will not be left unscathed. Commercial real estate is a lagging industry, and we could be in for 18 to 24 months of downward pressure.”

Jon Altschuler, president and partner, Stream Realty Partners: “The market’s nervous, all participants. It seems like everyone has an edge to them. I’m advising landlords to be creative and aggressive in pursuing office leases. In the near term, that’s how they’ll get their buildings leased. And for my colleagues, I’ll be encouraging them simply to keep the hammer down. Several heroes will be created from this market, and that’s what we want to be.”

Lucy Crow Billingsley, partner, Billingsley Co.: “Danger and opportunity are two sides of the same coin. 2009 is the pivotal year in which we each establish our positions on what danger we face or what opportunities we are positioned to seize. To mix metaphors, you could also say that we have been playing musical chairs and the music stopped.”

Jeff Swope, chief executive, Champion Partners: “The decimation of the financial system in 2008 was deeper and more widespread than even the most pessimistic could have predicted. The recent global economic system, built upon easy debt and unparalleled liquidity, is now broken. 2009 will be dedicated to the reconstruction of the finance system as the recession prolongs, with a gradual rebuilding of new and viable economic systems beginning in 2010.”

Jim Yoder, managing director, Jones Lang LaSalle: “In general, we should all be very happy to be in Dallas, Texas, in 2009 as we will outperform almost every other commercial real estate market in the country. We will continue to produce new jobs, albeit at a slower rate than in past years, and expect our vacancy and rental rates to hold steady or decline only slightly.”

Geoff Meyer, Texas development director, Opus West Corp.: “I think we will continue to outperform other areas of the U.S., but certainly not at the pace we’ve become accustomed to. Clearly the slowdown has reached us, and I don’t expect any speculative development in ’09, and it’s quite probable none will occur in 2010. Until we can get by the threats of weakened demand and a total lack of capital, it is going to be very, very difficult. We have definitely gotten a wake-up call and have to get a ‘back to basics’ mentality.”

Jean Russo, senior director, Cushman & Wakefield of Texas: “The D-FW industrial market, in comparison to other parts of the U.S., seems to be better positioned for positive net absorption for industrial properties in 2009. The construction of new projects, having reached an all-time record of over 20 million square feet in 2008, has relatively halted. No single market currently appears to be that significantly overbuilt — vs. what we saw in the ’80’s — in comparison to demand. Of course, rental rates are softening because of pressure from competing landlords and the increasing available supply of product.”

Jack Eimer, central region president, Transwestern: “I am personally tired of hearing the same predictions over and over again. 2009 is going to be tough. It’s going to get worse before it gets better. Commercial real estate values will drop precipitously. Layoffs throughout our industry will continue, etc., etc., Enough already. Let’s focus on the positive aspects of this downturn. We live and work in D-FW. Would you prefer to be on either coast right now? Focus on being positioned for what I believe will be a strong recovery.” Steve Brown