Friday, September 18, 2009

Real estate experts: Tenants in charge

Office and industrial tenants are clearly in the driver's seat across North Texas and will continue to be throughout 2010, a panel of commercial real estate experts said Thursday at an event hosted by Jones Lang LaSalle.

Effective office rental rates are down 12 percent in the past year and industrial lease rates have dropped 25 percent as a large supply of both product types and the economic turmoil take a toll on Dallas-Fort Worth, the commercial real estate firm's top executives said.

"What that means for landlords is, don't miss a deal," said Jim Yoder, managing director of office leasing for JLL. "If you're an owner of a building, you need to make your deal today."

Yoder expects office vacancy rates across Dallas-Fort Worth, now at about 17 percent, to peak in mid 2010.

Steve Thelen, managing director of tenant representation, said more office tenants are renewing their leases instead of relocating their offices, and concessions by landlords have increased. It will be at least three years before new office development begins again, he said.

"We might not see office cranes until 2012 or 2013," he said.

Jack Crews, JLL's managing director of investment sales, projected it will be five to seven years before development starts again in North Texas. However, the now-stalled market for buying and selling office buildings will improve slightly next year, and trade velocity will continue to speed up in 2011 and beyond as the credit market improves, more foreclosures hit the market and buyers and sellers are able to agree on values, he said.

The impact of the $787 billion federal stimulus package is just starting to filter through the economy, said Roger Staubach, JLL's executive chairman Americas.

The effect of the federal money will help the overall economy for the next 12 to 18 months, but then the economy will have to deal with the huge deficit the stimulus will create, Staubach said in an interview after the panel discussion.

"I worry about whether we'll really be out of it in two years," he said.

The D-FW area's commercial real estate industry will fare better than it did during the collapse in the late 1980s because development has slowed to reasonable levels, reducing the severity of any oversupply, said Paul Whitman, president of JLL's Dallas office.

North Texas has been grazed by the current national recession, but hasn't felt its full force, and will bounce back more quickly than other areas, he said.

"We were hurt less than other parts of the United States, and we will come out quicker than other areas because of (corporate) relocations and other factors," Whitman said.

Staubach urged the gathering of several hundred brokers and top commercial real estate executives to persevere.

"I've always believed that adversity reveals genius and prosperity conceals it," the former Dallas Cowboys quarterback said. "We are in difficult times, but the challenges bring out the best in all of us."

Bill Hethcock

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