I began my commercial real estate career in late 1986. Until 2009, that was about the worst time imaginable to get into the development business. A friend of mine once said, “When it is good, no one can believe how bad it can get, and when it’s bad, no one can believe how good it can be.” The latter is where we are today.
Most of us who have navigated a cycle or two know that you are in a downturn six months before you realize it, and the same can be said of an upswing. We all see the indicators, particularly in Texas, but there is so much global negative information to process, it tends to dampen our resolve. Yet in Texas, the jobs engine chugs along, at a sober, steady pace. And slowly, the large blocks in the choice submarkets are vanishing.
The cycle ahead appears to be different from those that came before. A lot of developers, large and small, are either gone or are still dealing with challenges from the past. Others are seemingly focused on buying vacancy. Regardless, it’s clear that we are emerging with a smaller cast of characters than previously seen.
In the 1980s, Dallas was home to the three largest developers in the nation—Crow, Lincoln and Vantage—and behind them was a host of regional powerhouses. For this and other reasons, Dallas, historically, had the tendency to build twice as much office space as needed. When demand ebbed, this created an obvious glut and a seemingly perpetual tenant’s market.
In the last cycle we did not overbuild as we have in the past. This likely was not due to a newfound sense of discipline inasmuch as it was, among other things, the Chinese impacting construction material costs.This challenged underwriting and created trepidation, particularly in the spec building sectors. Although it took some of the fun out of it, it turned out to be a healthy phenomena.
Today, there seems to be a strong gravitational pull from the north and the south along the Dallas North Tollway, and Preston Center is, and always will be, the anomalous market that fits into no competitive set. Like the Park Cities, Preston Center is not subject to the same realities of the world around it.
Similarly, the Uptown and Legacy submarkets have both created a sense of “place.” For users considering any one of those three submarkets, it is easy for them to get their mind around why they work. Further, it is also clear why these submarkets are strong bet for upward rent movement and, as a result, new construction.
The road is never clear until you see it in the rearview mirror. Having said that, what you can see ahead is that, unlike 1986, Dallas—and Texas in general—is poised extremely well for both organic growth and corporate relocations, and all the good things that go along with them.
As vice president of development, Ran Holman heads up North Texas operations for Hines, focusing on the office, industrial, and multifamily sectors. Contact him at [email protected].
