Dallas-Fort Worth is expected to be one of the country’s hottest real estate markets for investment and development next year.
D-FW area only follows Nashville in a scorecard of metropolitan areas real estate managers expect to thrive. North Texas’ second place in the annual “Emerging Trends in Real Estate Markets to Watch” report is a big improvement from last year’s seventh place.
Nashville took the top spot for the second year in a row.
The benchmark survey, sponsored each year by the Urban Land Institute and PricewaterhouseCoopers, surveyed more than 2,000 real estate professionals from across the country. About 5,300 ULI members met in Dallas this week.
While higher interest rates and the threat of a recession hang clouds over the real estate sector, Sun Belt’s boomtowns outperform the rest of the country in the new forecast.
“All markets in Texas are still doing well,” said Byron Carlock, PwC’s head of US real estate practice.
Along with D-FW, Austin ranks as the fourth most popular market in the country. San Antonio comes in 12th and Houston in 14th in the 2023 projections.
While real estate conditions in markets like Chicago and New York City are struggling, the Sun Belt is outperforming the country, Carlock said.
“The whole ‘smile states’ from Northern Virginia to parts of Los Angeles are still showing strength,” he said.
D-FW is highlighted in the report for the area’s ability to attract financing for investments and buildings and to attract new businesses, along with the strength of the local housing market.
Sun Belt’s boomtowns, including Dallas, are expected to outperform the rest of the country if the US economy slides into recession next year.
Nashville takes first place in this year’s Emerging Trends in Real Estate report. (Mark Humphrey/AP) Related: ‘Winter is coming’: Plans for a recession in the commercial real estate sector
Only 46% of property managers asked about their prospects said they expect next year to be better for their business than 2022.
“The outlook for next year is actually slightly lower than it was during the pandemic,” said Andy Warren, PwC’s director of real estate research. “I think that’s because we know more about what economic disruptions can do to the industry.”
Real estate company leaders believe a recession is imminent.
“We’re not in a recession, but we should expect one soon,” said Mary Ludgin of investor Heitman Financial. “Corporate profits are under pressure, so I expect change. “
Changes in office demand and use due to the pandemic continue to rattle investors and commercial real estate builders.
“No one we interviewed expects massive departures from office buildings, even in the most pessimistic scenarios,” the forecast said. Pro-office proponents note that the total number of office-using jobs in the United States as of mid-2022 was 5% above pre-pandemic levels, and growth is even higher in Sun Belt metro areas such as Austin, Atlanta , Dallas, Tampa and Denver.”
Last week, commercial real estate company JLL said it expects 65% of office workers to be back at their desks for most of the week early next year. Austin, Houston and Dallas are among the top cities for office worker occupation, JLL found.
Related:Nation’s Top Property Executives Meeting in Dallas Discuss the Economy’s Good and Bad
“Employees like the flexibility,” Warren says. “They also like to sit in the office.
“They like to work with their colleagues,” he says. “Three days a week seems like the right mix.”
Few real estate managers surveyed for the annual forecast expect a crash or liquidity crisis in the real estate markets.
“Demand incentives for certain asset types such as multi-family and industrial are still very strong and under-supplied,” said Carlock. “People are going ahead with business plans, but more cautiously — more equity and less debt.
“We’ve never been in a downturn with so much dry powder.”
Data and fulfillment centers, middle-income apartments and single-family homes, life science facilities and senior housing are identified as the top development prospects for 2023 in the Emerging Trends report.
But construction is already going down.
That’s a good thing, said Michael Levy, CEO of Dallas’ Crow Holdings, one of North Texas’ leading real estate investors and developers.
“We were all concerned about the amount of new supply,” Levy said. “That offer is really going to get a haircut in 2023.”
The value of commercial real estate has not fallen much yet due to a slowdown in valuations and a decline in sales.
“The markets haven’t completely dried up,” Warren said. “You still see deals being done. People are looking for opportunities.”
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