Dallas commercial property likely to drag in 2010, panel says

Top commercial real estate executives aren't looking for a sharp rebound next year.

That was the consensus Friday at a real estate outlook panel organized by The Dallas Morning News.

"I don't think next year is going to be much different from this year," said Clay Smith, chief executive of retail property firm SRS Real Estate Partners. "You are going to see very little, if any, new retail development for a while.

"When you build it hoping they will come – well, they are not coming," Smith told several hundred commercial real estate industry members at the meeting.

The commercial real estate market has struggled from the ill effects of a national recession and credit crunch, and higher-than-predicted local job losses.

"Real estate depends on job growth," said D'Ann Petersen, a business economist with the Federal Reserve Bank of Dallas. She estimates job losses at nearly 115,000 in North Texas this year. "Our forecast doesn't bode well for housing and commercial real estate."

Commercial real estate is heavily reliant on major retailers, which Smith said are bracing for a dismal holiday shopping season.

"Clearly, there are some retailers that are hanging on," Smith said. "They have been betting on the holiday season to bring them out of it, and it's not going to do it."

Overall, he said, local and regional merchants are doing better.

Still, Smith said, Texas is in the best shape of any market across the country where his firm does business.

A recent flurry of office building leases in the Dallas area is a good sign of what businesses are expecting, said Jim Yoder, managing director of Jones Lang LaSalle.

"The panic has ended, and people are trying to position their business," Yoder said. "Unfortunately for us, there is not a lot of velocity in the market. Many tenants are still pushing off decisions."

Yoder said he had been hopeful that Dallas would "dodge the bullet" in the national recession.

"But our rents are down 10 percent, and 13 to 15 percent in some markets," he said. "We expect building vacancies to peak in mid to late 2010."

Larry Hamilton, one of the few developers in town still looking for loans to do deals, said the credit market remains frozen.

"We think we got close to the last construction loan in America in 2008 for our Aloft hotel," which just opened in downtown Dallas, Hamilton said.

Hamilton, whose company is the largest developer of downtown residential space, is trying to borrow about $20 million to kick off redevelopment of downtown's historic Lone Star Gas buildings. That's about half of what the project will cost.

"A lot of bankers are tempted – they'd like to do it," Hamilton said. "But something is blocking them."