The overall vacancy throughout Dallas is
26%… Some areas obviously higher than others…
Background
Cycles for office development
typically last from 10-12 years – Peak –Peak – Trough – Trough.
The last Market Trough - 1991- last Peak 1998. Historically
speaking, the current market should have bottomed out sometime
around 2001-03.
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The
following
economic &
real estate
facts from 2003:
- Negative
job growth
- Increasing
unemployment
- Declining
consumer confidence
- Rising
vacancies
- Declining
rental rates
- Negative
absorption
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 |
Implied that the
real estate market at the beginning of 2004 was still declining…
The current
collective thoughts are that the economic indicators have turned
slightly positive, and probably the real estate indicators will
bottom in early 2005; not turn positive, but stop declining. From
there we believe the real estate market will begin recovering in
mid 2005 with no significant progress until late 2005 and
beyond. Since real estate is dictated by supply & demand, we
expect prices (both rents & values) to stay low because of excess
supply and rise upwards as demand increases.
Based on existing
vacancy & projected demand we don’t expect significant rent spikes
to start until 2006 which is when we also project office
development to begin. Traditionally, office vacancy is considered
stabilized around 10%. Given the time it takes to complete a new
office building, the development process usually starts 18-24
months before vacancy rates reach stabilization. So the earliest
new developments will start is when vacancies reach 14-15%. Given
current vacancies and normal absorption, this translates to 2006
–2007 before any new development will be justified.
Unlike past
recessions, one of the nuances so far in this downturn has been
land prices have stayed firm. Land has remained at the elevated
price levels of the late 1990’s due to the fact that ownership is
with patient institutions and wealthy investors. Therefore, we
don’t expect deep discounts from land sellers in this cycle.
Build-to-Suits are occurring
but with less frequency since few companies are growing and the
excess supply of available space in the marketplace. Those that
do BTS though are taking advantage of low interest rates, low
construction cost, and available land to meet their unique
requirements.
OUR
PROJECTIONS
The real estate market should bottom out in early 2005 with
concessions fading in mid 2005. Rents and values should
start to improve some time in 2006 with development beginning in
2006 and 2007. The market should peak around 2008-2010.
