Monday, November 12, 2012

With Elections in Rearview Mirror, Will Companies Decide to Expand?

Now that the election is over, businesses will have to come up with another excuse not to expand. That won’t be a problem. There’s the fiscal cliff looming. And Christmas is coming. Why worry about leasing that new office or warehouse if the end is nigh?

Real estate firms have been complaining all year that corporations are reluctant to grow until they can figure out what the economic future holds.  Asieh Mansour, head of research for commercial property firm CBRE Group, told a Dallas real estate meeting this week that getting the election out of the way may help move businesses off the fence about expanding.

“We are waiting for them to start spending and leasing more space and hiring more people, but they are not doing it,” Mansour said. “Once they at least have clarity [about the election], they are going to decide how they want to spend.”

I don’t think companies will have any choice but to expand to meet slow but steady improvements in the economy. And that’s particularly true in North Texas. “Texas is doing better compared to the rest of the states,” Mansour said. “Texas, in general, and Dallas has done a good job of recovering.”

Demand for warehouse and distribution buildings in the Dallas-Fort Worth area has more than doubled this year, filling vacant buildings and sending developers scrambling to put up more space. And office construction — which was perhaps the hardest hit by the recession — is on the way back with new projects on the drawing boards in Uptown, downtown and along the tollway.

“Texas has a tremendous buzz about it right now,” CBRE Group vice chairman Gary Carr said. “It’s getting as much media attention as I can remember in my career.” He said almost 40 real estate investment deals have been made in the D-FW area this year, totaling more than $1.4 billion.

“If you look at the capital flow, most of that is coming from outside Texas,” he said. Leasing agents say companies that put off expanding their local offices may be surprised to find that the supply of space has dwindled in the Dallas area.

“The large blocks of space are really starting to go away,” CBRE vice chairman Jeff Ellerman said. “I think we are in the late seventh inning of a recovery of the office market. “In the very short term, you are going to see businesses looking for space.”

Of course, that’s good news for developers, who’d like nothing better than to build a bunch of new office towers. But the sticker shock with some of the new buildings may cause expanding businesses to do a double take, brokers warn.

“You have a pretty wide gap from where … rates are today,” Ellerman said. Even so, when it’s time to add workers and business is growing, corporations usually don’t let real estate costs get in the way of higher revenue.

Steve Brown
Real Estate Editor
Dallas Morning News