Texas Real Estate Business

OCT 2017

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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26 • October 2017 • Texas Real Estate Business www.REBusinessOnline.com M A R K E T H I G H L I G H T: F O R T W O R T H In the greater Fort Worth commer- cial real estate market, there was a scarcity of industrial speculative de- velopment until 2007-2008. A number of submarkets saw projects go vertical at this time, including Alliance, North Fort Worth and South Fort Worth. The results were mixed. While there were some successes, a number of developers found themselves at the mercy of unfortunate timing. Deal ve- locity slowed, leaving well-positioned buildings competing for the same ten- ants. This resulted in unanticipated, extended vacancy time frames and generous tenant concessions. Fast forward to 2017 — 10 years after the last cycle — and we are in the midst of an even more ambitious round of speculative development. Although many would say we are in the late innings of this real estate up- swing, the number of new starts un- der construction or announced across Fort Worth paints a different picture. Is the continued construction jus- tified, or is this another example of developers falling in love with the market fundamentals and not paying enough attention to market-specific deal velocity? According to the U.S. Census Bu- reau, Fort Worth's population has grown 60 percent since 2000, making it the 16th-largest city in the country and the fastest-growing among the 20 largest cities in the country. These rankings do not take into ac- count the populations of neighboring suburban cities and their tremendous growth, which contributes to the greater Fort Worth industrial real es- tate market. Consequently, this area is often an afterthought when the great- er Dallas-Fort Worth deal activity is discussed. However, there have been numer- ous headline deals throughout the Fort Worth area in this industrial cy- cle, including the relocation of Farmer Brothers coffee company from Cali- fornia to Northlake, along with the major expansion of Wesco Aircraft on the city's south side. Fort Worth also won a Facebook data center project, as well as indus- trial leases for big box retailers like S&S Activewear, Walmart, Camping World and Dematic, to name a few. The market has also benefitted from the activity of third-party logistics providers, which has led to large in- dustrial footprints in Fort Worth for the likes of Lego Systems and Camp- bell's Soup. This run of speculative property de- velopment started around 2014 and has included projects in virtually all areas of the greater Fort Worth indus- trial market. The natural tendency is to compare cycles, and that comparison creates a cynical view that past mistakes are being repeated. Those cynics will say that there are too many buildings go- ing up at one time and that inevitable market correction is upon us. Once that correction hits, there will be a bloodbath for the few tenants that are in the market. The flaw in this line of thinking lies in the fact that absorption of indus- trial properties has been at historically high levels for some time, and the city has never seen the rate of population growth currently in place. The shift to e-commerce cannot be disputed; more and more products are being delivered to consumers' homes, and speed of delivery is the name of the game. Inevitably, more people leads to a greater need for distribu- tion centers to be able to service those households. We also have a strong initiative from the current administration to bring jobs back to the U.S. We have seen Texas' business-friendly environment thrive during this real estate cycle, which has played a major role in the migration of businesses from other parts of the country to Texas. In addi- tion to the headliners, the relocations of many small businesses cumulative- ly make a large impact. Dallas/Fort Worth has been a major player in this. Leaders of Fort Worth and the surrounding communities have embraced relocations and have been very proactive and creative in selling what the area has to of- fer: a diverse population base with a strong labor pool, affordable housing, close proximities to interstates and excellent infrastructure for business growth. These are some of the main reasons that developers have been so ambitious. Many of these players are new to the market, but we also see develop- ers that have long-term land holdings taking part in this cycle. Buying exist- ing modern warehouses is almost im- possible and with cap rates at historic lows, these developers from outside of the market understand that the most realistic point of entry involves build- ing from the ground up. The market lease comps are currently showing that rates are up, and that annual rental bumps have become a market standard. Key players in the Greater Fort Worth industrial speculative game in- clude Hillwood, IDI Gazeley, TCRG, Majestic Realty, Johnson Develop- ment, Crow Holdings, Trammell Crow, Scannell, Hunt Southwest and Ridge Development. Facilities gener- ally range from 200,000 to upwards of 1 million square feet — building any- thing smaller does not result in the economies of scale required to make the required returns. For buildings constructed during this cycle, the emphasis is on features like higher ceilings, more trailer park- ing, increased employee parking, bet- ter natural lighting and infrastructure to support the increased demand for HVAC warehouses. With a competi- tive labor market, tenants are trying to create an environment that allows for them to recruit. E-commerce facilities also have a set of unique requirements that encom- pass many of those listed above. De- velopers remain keenly aware of those needs as they plan. Time will tell as to whether the con- tinued speculative construction in the perceived late stages of this cycle was overly ambitious or if the cynics underestimated the factors of unprec- edented population growth and the new realities of e-commerce. Regardless, this cycle has spot- lighted many success stories and new fundamentals that have changed the game. As we head into 2018, we remain fortunate to live in the great state of Texas and to be a part of the greater Fort Worth industrial market. SPEC DEVELOPMENTS GROWING QUICKLY IN FORT WORTH INDUSTRIAL MARKET More than 6,000 people call Willis home. Residents enjoy a quiet, peaceful quality of life with all of the amenities of a large metropolitan area. Located in Montgomery County just 50 miles north of Houston, Willis is a prime location for commuters and a great place for families and students. When you work in Willis you have the convenience of being located directly on Interstate 45, with easy access to your customers and vendors. In addition, the city's Community Development Corporation ensures that residents have plenty of green space, attractive streetscapes and local festivals and events throughout the year. The Economic Development Corporation offers innovative workforce development programs and business incentives, and works with local businesses to ensure that they have the tools they need to grow and prosper. Willis is an outdoor lover's paradise. Located in the heart of the Sam Houston National Forest, and just around the corner from beautiful Lake Conroe, many people visit the City of Willis for camping, fishing, biking, cycling, horseback riding, boating, fishing, and wildlife viewing. LIVE, WORK, and PLAY i n Willis, Texas live work play www.visitwillis.com Todd Hubbard Fort Worth President, NAI Robert Lynn

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