"The fundamentals are clearly stronger than they were in the 1980s, but we have to closely monitor construction to preserve market health," says Janice Stanton, managing director of investment research for Cushman & Wakefield Inc.
The words of caution fall on the heels of the FDIC keeping Dallas on its "at risk" list and adding Ft. Worth as an area of potential overbuilding. But, it's definitely not the 1980s, Stanton emphasizes. Urban vacancy rates are 7.1% on the average nationally in comparison to 15% in 1986; suburban rates are 10% now instead of the 23% experienced 14 years ago. Today's construction is about half of the 1986 levels, with most CBDs at 6 million sf in comparison to 36 million sf and suburban markets on the average at 70 million sf instead of 140 million sf. Plus, Stanton says, capitalization rates are significantly higher.
"We just need to keep an eye on the markets as we slow," Stanton told Cushman & Wakefield brokers at an annual breakfast at Las Colinas' Omni Mandalay. Dallas, Atlanta and Phoenix may be "slightly overbuilt," but, she says, it's important to realize that all three metropolises have added 10% of their available inventory just in the past 10 years--and vacancy rates are still at safe levels in all three regions.
Yes, the economy is slowing, says economist Kenneth McCarthy, managing director and founder of the Economic Intelligence Co., but "it's slower than what?" This year's activity in interest-sensitive areas are dipping slightly from last year, but the economy is definitely outpacing any other year in this decade or many decades, for that matter. Instead of the GNP being 6%, it's 2-1/2% to 3%, he says. "If this were in Europe, they'd be ecstatic," he says. "And, it's being driven by forces that have little to do with the election or interest rates over the short-term... This economy is going to continue to grow no matter who's in the White House and no matter what happens outside the US."
Commercial real estate professionals can ride out the Feds' deliberate slowdown if they understand what makes their markets tick. Dallas is in a particularly good position because its economy is being driven by a well-rounded base instead of one specific sector. The street-wise brokers heard what they know to be true: This region's hardiest sectors are distribution and high-tech. "A diversified economic base is much less sensitive to downturns," McCarthy emphasized to GlobeSt.com.
Stanton says what Dallas does need to do is transform its Central Business District from a 9-5 operation to round-the-clock, a smart move that has been made by many other CBDs in the nation. "The 24-hour CBDs are outperforming the 9-5 CBDs," she says, citing a 1% vacancy rate in San Francisco, 2% in Boston and 3% in New York City as proof.
Stanton is responsible for analyzing investment markets and trends across markets for Cushman & Wakefield. McCarthy specializes in turning economic information into intelligence for decision makers. His company analyzes and interprets economic and political developments in the US and abroad.
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