2020 DFW CRE Investment Market Review
With Q2 numbers are compiled, it is a good time to do a 2020 DFW CRE investment market review. We looked at several such reviews by leading investment firms.
Dallas came out on top for the first half of 2020 in spite of a slowdown in the commercial real estate investment market. $9.3 B in deals closed during the first half of 2020. Even though this placed Dallas at the top for 2020 so far, it is still a 10% decrease over last year. Dallas edged out both Manhattan and Los Angeles for the first time. New York was in second place with $7.8 Billion. This is a 44% decrease compared to the year before. Transaction activity in Dallas was heavily weighted towards the first quarter when it saw several large portfolio deals including the Prologis acquisitions of Liberty Property Trust and Industrial Property Trust.
Dallas ranked fourth in the nation during the period 2nd quarter 2019 to 2nd quarter 2020 according to a report published by CBRE. Most indicators point to a gain in momentum for the global economy. Strong rates of growth are expected into 2021. DFW’s total investment volume was over $21 billion for this time period.
New construction remains on par with the past six years. There have been a handful of retail-to-industrial conversions, but big-box construction is the leading method of new development and remains at the periphery of the urban area.
CBRE mid-year report for 2020 is available for download here.
Real Capital Analytics
In a report by RCA, they stated that U.S. commercial real estate transaction activity plunged in the second quarter. The Covid-19 crisis scuppered dealmaking and cast a shadow on future demand for some property types. Transaction volume dropped 68% to the lowest level for a second-quarter since the Global Financial Crisis, the latest edition of US Capital Trends shows.
Activity across all major property types tumbled. Industrial sector sales volume was half that of a year earlier, with the other key sectors faring worse. Only 68 hotel transactions took place in the quarter.
A Look at Industrial
Though every commercial sector has been hit by the pandemic in some way, experts agree that industrial has held up the best so far. At the end of 2019 and the start of 2020, industrial deals were happening. Buyer interest was at an all-time high according to Adam Abushagar. Adam is a senior vice president of investments at Marcus & Millichap. He recently spoke with the Dallas Business Journal.
“On the institutional side, everything was at a dead stop. Deals that were in the works just paused. On the private side, things were still moving,” said Abushagur.
This activity in the private sector has been credited to 1031 exchange buyers, whom Abushagur does much of his business with. These buyers were still motivated to act quickly and only paused when the IRS extended the 1031 exchange deadline to July 15. May was the slowest month for this type of activity, said Abushagur, but has steadily picked up since. Despite the slowdown, Abushagur is expecting to have his best year ever in 2020. He believes overall interest and demand in industrial real estate will continue as investors look to diversify from other assets like office, retail, and hospitality.
The Apartment Sector
Uncertainty around the pandemic and its impact on tenants paying rent was not the only reason why many apartment deals paused. New debt service reserve requirements from both Fannie Mae and Freddie Mac also took a lot of deals off the table, said Allen.
New requirements asked that investors have a one year’s worth of debt service in reserve. That’s caused some of the investors who would like to sell to hold off because they’re private clients that aren’t in the game of raising capital.
The Office Market
While retail and hospitality investors are wary, office investors are extremely guarded. No one truly knows what office occupancy rates will be post-pandemic. Assets that have long-term leases in effect will see the most movement in the coming months. Gary Carr of Newmark Knight Frank told Bizjournals that things have been slow in this arena since March.
Despite continued uncertainty, Carr has seen some movement recently and expects activity to pick up after Labor Day.
“We’ve been very, very busy providing (broker’s opinion of value) and we’ve also seen debt liquidity come back into the market,” Carr stated.
Kurz Group, Inc. has a staff of consultants watching property values. If you would like to discuss you concerns with the value of your property, contact one of our professionals.