Randy Baird: What Inning Are We Really In?

Randy Baird
Randy Baird

You only have to watch CNBC for about 10 minutes before you hear speculation that the global capital markets are on the verge of collapse. Of course, if the global markets are collapsing, the U.S. must also be collapsing, and with the sharp decline in energy commodity pricing, Dallas will lead the way into the black hole.

Then, with the number of cranes around our city, our real estate markets surely are becoming overbuilt. Combine it all and you’ve got what appears to be a stage set for a catastrophe. After all, we have China’s woes shrinking the global economy, a strengthening dollar disrupting export trade, the Middle East reaching a boiling point, and did I mention oil prices are too low to support a Texas economy?

All this conversational anxiety can make anyone nervous … but what’s really true?

In real estate circles, everyone likes to discuss this economic cycle using the baseball metaphor “what inning are we in?” Many astute market participants cite the fact that we are now in year seven of an economic recovery and the recovery/growth phase of Dallas’ real estate cycle. Given that the average real estate cycle is seven years in duration, some would take this to mean we are in the ninth inning and a couple of strike-outs away from lights out at the ballpark.

But hold on a minute. Who says an economic or real estate cycle has to last seven years? Baseball games don’t always last just nine innings. Take the May 1984 game between the Milwaukee Brewers and the Chicago White Sox. It captivated fans for a whopping 25 innings!

In recent months, capital markets have settled, Wall Street seems less anxious, and commercial real estate trades are being consummated on terms equal to or better (for sellers) than before all the aforementioned conversational anxiety set in. Has anyone heard of a double-header? I’m certainly not saying we are only halfway through this cycle (or am I?), but it sure does seem like there’s a lot of runway left in front of us. Consider the following:

 • The overall first quarter 2016 Dallas-Fort Worth vacancy rate for industrial properties is only 6.9 percent, versus 8.3 percent for the first quarter of 2015. Office space statistics continue to improve as well—8.3 percent vacancy in 1Q16 versus 8.9 percent in 1Q15.

• Last year, DFW employment grew by 116,600 nonfarm jobs—a 3.5 percent increase over 2014, equating to 319 net new jobs per day.

• As of February, unemployment in Dallas-Fort Worth stood at 3.7 percent; 4.3 percent in Texas overall, and 5.2 percent nationally. (Houston came in at 4.7 percent and Austin at 3.1 percent.)

• Natural Resources and Mining (Energy) Jobs as a percentage of total employment is 2.1 percent nationally; in Dallas-Fort Worth, it’s 1.3 percent.

Now, back to the sports metaphors. A good friend recently suggested that we might be using the wrong sport. Rather than baseball, he says, this market is more like soccer—you never know how much time is left in the game. I think he’s right, and it also applies to life in general.

Here is what we do know: We have enjoyed several years of steady growth in Dallas commercial real estate, fundamentals are better than they have ever been, employers love Dallas, capital from all corners of the world is seeking hard assets with cash flow, and Dallas is positioned to out-perform global markets. So for now, let’s all be thankful for these good times, for the entrepreneurial city we call home, and for the road ahead—however long or short it may be.

Randy Baird is executive vice president within the industrial capital markets advisory group of Cushman & Wakefield. Contact him at [email protected]

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