This story is corrected from an earlier version: the Stockyards saw greater foot traffic in December than a year earlier. Three other shopping area experienced less foot traffic.
For one morning every year, Fort Worth-area real estate pros enjoy a Continental breakfast, dish out predictions for the new year, and revisit their old ones in the ballroom at the Fort Worth Convention Center. The Tarrant County Commercial Real Estate Forecast, put on by the Real Estate Council of Greater Fort Worth, typically draws several hundred attendees. Last Thursday, the event went virtual.
“You think you’re at the wrong end of a practical joke,” Reid Goetz, a Hillwood vice president and first-time invitee who was called on to give the industrial forecast, told viewers.
Drew Kile, senior managing director for Institutional Property Advisers, joked “I think there’s, like, eight people in the room, but nonetheless, excited to be here,” before he launched into his review of what he called a “typical pandemic year” for the multi-family and single-family markets.
Their prognosis: Continued strength in industrial and multifamily; rebound in office deals; weakness in retail and hospitality.
ECONOMIC DEVELOPMENT
The Fort Worth Chamber of Commerce’s victories over 2020 included the addition of the 500-employee headquarters of Incora, a supply chain firm, in North Fort Worth; the 475-employee regional headquarters and distribution center of Ariat, an equestrian, outdoor and workwear company; and the 40-employee headquarters of Wamar Technologies, a defense and security firm.
The chamber fielded plenty of inquiries, “but over the first half of the year, there were no decisions being made” and no relocation visits, Chris Strayer, the Chamber’s executive vice president of economic development, told viewers. “The second half of the year was actually very good for us. We had at least one market visitor per week. It got back to a little bit of normal, but still, we have a long ways to go.”
The Chamber’s workload grew during 2020, Strayer said. “In 2018, we worked on 60 projects, 82 in 2019, 121 in 2020,” he said. In January, 14 came. “COVID, you’d think we’d go backward. But no, we went forward.”
This year, the Chamber expects an influx of requests for information from companies interested in relocations and expansions. “2021 is going to be a year of analysis and planning for those headquarters,” and 2022 will be the year of execution, Strayer predicted.
The Chamber also is meeting with companies with existing operations here as part of its retention work. “It’s a priority for us,” Strayer said. “What are the roadblocks we need to remove for them.”
Scott Nishimura
CONSTRUCTION
U.S. construction employment dipped significantly to a low in April, but rebounded. By year’s end, according to Associated General Contractors of America data, residential construction employment was up 0.5% after being off nearly 16% at the year’s nadir, said Scot Bennett, regional director of The Beck
Group’s Fort Worth office, who gave the construction piece of the forecast. Non-residential construction employment was off 5.2% after being off nearly 14%. Texas construction employment was off 4.7%.
Federal payroll protection plan loans helped firms rehire workers, but those funds are running out, Bennett said. (A new round of PPP loans is now available to employers.)
According to an AGC member survey, out of 16 construction categories, general contractors said they expected the net value of 2021 projects to be higher than last year’s only in non-hospital healthcare, warehouse, and water/sewer, Bennett said. Private office, lodging, and retail registered high levels of pessimism.
Bennett expects construction to “pick up some by midyear. 2021 is a year of letting it shake out.”
Prices for materials are “up dramatically in some cases,” and the industry is experiencing shortages of key workers and transportation bottlenecks, he said. “The industry is continuing to lose workers, as was the case before COVID.”
But “DFW is still in the top of U.S. markets to watch, so I feel good about it,” he said. And Fort Worth is “being categorized as a magnet city.” Still, he noted, “the comeback is going to be slow, and hiring is going to be slow.”
Scott Nishimura
Shoppers crowd the December holiday market at The Shops at Clearfork in Fort Worth.
RETAIL
Shopping center traffic in the Fort Worth area – similar to broader COVID-related patterns – hit a low in April and followed a bumpy recovery toward the end of the year, according to data shown on four major shopping areas during the retail forecast presented by Jessica Miller Essl, co-founder of M2G Ventures, a Fort Worth retail estate firm that specializes in adaptive re-use.
Fawn & Fellow Photography
According to the data, from Placer.ai, an analytics firm in consumer foot traffic, the Stockyards demonstrated substantially more foot traffic in December 2020 than the same month in 2019.
Foot traffic at the other three shopping areas that Miller Essl included in this piece of her presentation – Clearfork, University Park Village, and West 7th – all rebounded from their April lows, but posted lower numbers in December than in the same month in 2019, according to the Placer.ai data.
According to vacancy data from the Weitzman real estate firm that Miller Essl included in her presentation, Northeast Fort Worth – anchored by the Alliance Corridor – had the Fort Worth area’s lowest vacancy rate of any submarket at 1.8%. The Central Business District, anchored by Sundance Square, had the highest, at 13.8%, according to Weitzman.
National retailers closed 73 locations in Tarrant County last year, Miller Essl said, citing data from the Visit Fort Worth bureau. “It’s hard to quantify exactly where we are right now, because a lot of it hasn’t come out” yet, she said.
Miller Essl’s predictions for 2021:
• “Year of recovery with more closures and forging ahead with a slight increase in occupancy;”
• “Focus on mixed-use and adaptation of existing retail;”
• “Shoppers feel safe (against COVID) in Q3 and Q4;”
• “We rebuild our food and beverage platform;” and,
• Fort Worth becomes 12th largest city, moving up from 13th.
“We outpace the city competition, but it’s a slow recovery in 2021,” Miller Essl said.
Miller Essl’s remarks about some of the city’s shopping districts:
The Shops at Clearfork: “Three closures, very good. I would put them in the very stable category.”
Waterside: Lost Sur La Table national retailer. Replaced closed Taco Diner with the second location of The Rim, the popular restaurant opened in 2019 in Burleson by Brent Johnson of Rio Mambo and Keith Hicks. “It looks very stable, very full.”
WestBend: “Retenanting the mix.” Market by Macy – a small-format store by retailer Macy’s – has opened in the former grocery space. New openings include Ascension Coffee and ZAAP Kitchen. “They asked me to tell you Ascension Coffee is killing it.” Johnnie-O apparel retailer opening Feb. 5 in former Pax & Parker space. “Lease is out on the Bartaco space.” On WestBend’s second phase, to focus on multifamily and hospitality, “with the macro environment, they’re waiting for the perfect time.”
West 7th, Crockett Row. Several closures in 2020, two new leases. “We do expect this to be stabilized in Q3, Q4.”
The Foundry District, an M2G development: Two closures in 2020, 90% leased. Benefitted from tenants using space for different reasons,” such as flex, she said. In 2021, Blackland Distillery will continue to expand. White Settlement bridge, one of the Panther Island “Three Bridges” projects, expected to open soon. That will open up east-west traffic through The Foundry, she said.
Near Southside. 37 openings or lease signings, 2020-21. Tenants who closed were “likely the ones that were going to close regardless of COVID.” Texas Commission on the Arts named Near Southside a cultural district. “They saw a lot of strong small business support” by customers. Upcoming: PS1200, 701 W. Magnolia Ave. mixed-use developments, expansion of Hotel Revel, M2G’s PROOF adaptive re-use project.
Stockyards, Mule Alley, an M2G project as exclusive retail partner. “This will be kind of its crescendo year.” Another 40,000 square feet of leases expected this year. Hotel Drover opens March 21. “Very high-profile food and beverage to be announced.”
Scott Nishimura
MULTI-FAMILY and SINGLE-FAMILY
“Multifamily operations in Texas were nearly unscathed,” Drew Kile, senior managing director at Institutional Property Advisors, a multifamily brokerage division of Marcus & Millichap, said, in giving the multi-family and single-family forecasts. “No material degradation in occupancy. Rents stable. Rent payments over the course of last year were within 1% of where they would be on a regular year. We’re blessed to be here in Texas. If you talk to the guys on the coastal markets, it’s a mess.”
Sales were strong in the third and fourth quarters, after a slow second quarter, he said. Investors “saw this as an opportunity to buy real estate. They could have a conservative model and have better returns.”
For 2021, the sales outlook is “strong,” he said. “We had a huge year last year in sales. Buyer interest remains very strong.”
Kile questioned voices in the industry who say more people are looking to move out of urban areas into suburbs, saying that’s more of a “coastal” trend. “That’s not really occurring here.”
Tenants are renting longer before buying homes, and taking longer to get married. Singles are going two years longer to get married today than 10 years ago, he said. In the U.S., the age of first-time mothers was 26.9 in 2018, up from 21.4 in 1990, Kile said. These trends bode well for apartment owners, he said. “People are living in apartments longer; it’s by choice.”
Median prices of single-family homes were up 98.9% in 2020 since their prior peak in 2005, the fourth strongest numbers behind Denver, Austin and Charlotte, Kile said, citing data from IPA Research and the National Association of Realtors.
“What that leads to is the gap between apartment rents and owning a home,” he said. “Bigger than ever.” Citing IPA analysis and data from several sources, he said the gap between monthly home payments and the lower apartment rents was $893 in 2020 in the DFW area, compared to $693 in 2006. That assumes a 30-year fixed-rate mortgage, 90% loan-to-value ratio, property taxes and insurance, and private mortgage insurance required by the high LTV.
Nodding to nascent debate in Fort Worth over whether there’s too much apartment construction underway, Kile said vacancy in the DFW area is “basically flat” and being aided by substantial population growth, particularly among young adults and median home price growth. The DFW area ranked No. 1 nationally last year in apartment completions at 25,800, or 3.1% of the inventory, Kile said. Fort Worth vacancy was down slightly to 5.2% in 2020 from the year before, he said. Dallas vacancy rose to 5.8%.
“It’s a very bullish outlook for multi-family over the next one to five years, starting right now,” he said.
Rent growth in the area has been stable. “Across the board, there’s no big volatile markets,” he said. Fort Worth saw average 3.3% rent growth in 2020, he said.
For 2021, the new inventory that’s being completed and available for lease “is very diverse” in Fort Worth, Kile said, from the “River District to River East, medical center, down to Clearfork. It’s really spread out. The supply is very evenly spread around in Tarrant County, whch is great. They’ll absorb those units in the blink of an eye.”
Yields as expressed in cap rates have been going down as prices “keep going up,” Kile said. “There’s a lot of capital that’s pent up for multi-family.” DFW sale prices rose more than 10% on average in 2020, while cap rates were 5.1% on sales of $1 million or greater as of Jan. 1, 2020, he said.
The spread between apartment cap rates and bonds, large cap stock dividends, and Treasuries is substantial, he pointed out. The yield on U.S. Treasuries as of Jan. 1 last year was 1.1%. “The ability to get a return in a solid real asset is huge. It’s an asset class that more and more people get,” Kile said.
For 2021, Kile also predicted performance will continue to improve, permits will continue to rise but be 30-40% below the last five years’ average, and values will be up 10%. “Bold statement for a one-year move,” he said. Rent growth, he predicted, “jumps to 5%” for 2022-2024.
Scott Nishimura
OFFICE
Few office deals were done in 2020, so Matt Montague, senior vice president of JLL in Fort Worth, focused on predictions for 2021: Leasing activity “up substantially; low to no new deliveries, multiple downtown building sales” as capital sidelined by COVID returns to the playing field. “Most of our clients spent the year learning how to manage.” Rents, he said, will be “relatively stable,” and “occupancy up.”
The sale of the Pier 1 headquarters to the City of Fort Worth for its new City Hall, and the likely sale of 115 W. 7th St. will tighten up inventory. “There’s about 700,000 square feet that will leave our office inventory downtown,” he said. “I do expect our office inventory to shrink.”
Despite speculation that companies learned working by remote has been effective and will lead to less demand for office space, Montague said he remained “long on the office,” citing factors such as population growth, cost of labor and living, low-regulatory operating environment, low operating costs, and weather.
“The office is here to stay,” he said. “It is not dead. “The office provides a place for us to collaborate, provides culture, community, a place to compete. Very, very difficult to get virtually.”
While COVID accelerated some trends, such as work from home and flex scheduling, “so far we’ve not seen our clients change their space needs dramatically,” Montague said. “One thing is constant; they still want an office as a place to call home.”
Industrial project planned by M2G Ventures and Pennybacker Capital.
INDUSTRIAL
Industrial development and investment, already pushing strongly ahead before COVID with the expansion of e-commerce, “will continue to be strong,” Reid Goetz, the Hillwood vice president, said in giving the industrial forecast. Ecommerce sales have “exploded” since COVID.
Debra Hale
The pandemic exposed flaws in the global supply chain and “just-in-time” inventory models that business has built to minimize warehousing and distribution costs. “We’re just now realizing that just-in-time models are too vulnerable to global supply chain risks,” Goetz said. “We are now hearing about ‘just-in-case’ inventory models, which are going to build in 5% extra capacity to existing footprints.”
Every $1 billion in sales equates to about 1.2 million square feet of necessary industrial space, he said. Tarrant County, which has 365 million square feet of industrial, or 36.9% of the Dallas-Fort Worth inventory, has 15 million square feet under construction. The DFW area has 32.3 million square feet under construction, making it the No. 1 U.S. market, Goetz said.
With so much being built, the “vacancy rate is ticking up just a bit,” Goetz said. He expects the DFW vacancy rate – now 7.1% - to reach 7.5% in 2021.
For 2021, he predicted three 1 million-square-foot industrial deals to be signed in Greater Fort Worth; the announcement of a major West Fort Worth project; and DFW market net absorption remaining “above 20 million square feet” (currently 20.9 million).
Finally, in a nod to his three sons, Goetz said, “The Kansas City Chiefs will win the Super Bowl.”
