At Jones Lang LaSalle, we use a property clock to demonstrate where each market sits within its real estate cycle. The clock is divided into four sections: the geographies on the left side are typically landlord-favorable, and those on the right side are typically tenant-favorable. Markets generally move clockwise, and the biggest factor governing how quickly a market moves through the clock is supply and demand.
Now that the formalities are out of the way, let’s talk about where the Dallas industrial market sits on the clock and what it means for tenants.
The Dallas market is basically at 6:30. It has already reached the bottom (lowest rates in effective terms), and rates should continue to increase for the foreseeable future.
During the past three years, corporate America has been reluctant to make real estate decisions. Various reasons have been given for the slow action: the recession, credit crunch, upcoming Presidential election. By and large, when corporations were forced to make leasing decisions, they generally opted for short-term leases.
I talk to tenants every day, and they all want to know, “When is the time to act and make decisions that affect my real estate?” Well, decision-makers, the time to act is always sooner rather than later. Rates are rising in effective terms (in terms of asking rate, they’ve been relatively flat).
Demand for space has been healthy. North Texas has recorded 5.5 million square feet of positive net absorption, year-to-date. This puts the local market slightly ahead of pace for an average year. (Average absorption typically is about 8 million square feet per year.) Unless there is sudden decrease in demand, there should continue to be upward pressure on rates. (The vacancy rate has been steadily declining and currently stands at 8.5 percent.)
Well-informed real estate professionals make every effort to study all of the market statistics to advise their clients of the market’s current condition and likely movement in the near future.
All things considered, I believe that businesses need to act now and take advantage of a market that has bottomed out to capture savings on their net effective rent.
As managing director, Terry Darrow leads Jones Lang LaSalle’s Dallas-Fort Worth industrial group. Contact him at [email protected].
