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Healthy economy attracts new companies, residents 4.8 million sq. ft. Construction:
and retailers. Strong tenant demand in the Dallas/Fort Worth In 2018, deliveries will fall from the
will be completed
Metroplex continues to lure numerous companies as they relocate 5.5 million square feet brought
or expand operations, resulting in a strong, steady pace of hiring online in 2017. Despite the dip,
over the past few years. Healthy wage growth has boosted completions this year remain
consumer confidence and retail sales, which totaled an annualized higher than the five-year average.
$152 billion in the second quarter, a 7.2 percent year-over-
year increase. The healthy and diverse economy has increased 20 basis point Vacancy:
migration to the Metroplex from an average of more than 60,000 Vacancy slides again this year
decrease in vacancy
individuals annually from 2007 to 2014 to an average 94,000 as demand outstrips supply ad-
residents each year since 2015. Retailers have been expanding to ditions for an eighth consecutive
meet the growing demands of more people, boosting demand for year. The rate dipped 10 basis
retail space. Suburban retail space has been targeted as retailers points during 2017.
seek to locate near residential development and growing suburbs,
with vacancy rates falling below 6 percent within every submarket 4.5% increase Rents:
during the second quarter. Strong demand fosters a healthy
in asking rents
pace of rent growth during the
Absorption outstrips additions over the past five years, 2018 and the average advances
driving down vacancy. Tenant demand for retail space has to $17.12 per square foot.
been strong as numerous national, regional and local retailers
have sought to expand throughout the market. Developers have
struggled to keep pace. More than 22 million square feet of retail
space has been completed in the past five years, but retailers have
absorbed over 29 million square feet. As a result, vacancy has
tumbled 160 basis points.
Investment Trends
• A healthy economic outlook and continued growth across the
Local Retail Yield Trends Metroplex attract investors to retail properties. Strong demand
Retail Cap Rate 10-Year Treasury Rate results in healthy competition for available assets, keeping multi-
tenant cap rates compressed despite increased borrowing
12% costs since the end of 2017.
• Newly constructed, unanchored strip centers are in high
Average Rate
9%
demand, with both out-of-state and local investors competing
6% for assets. Competition has increased as favorable yields,
which range between 6 percent and 7 percent depending on
3%
location, and low management needs are particularly attractive
0% to investors exchanging out of net-leased properties.
00 02 04 06 08 10 12 14 16 18*
• Single-tenant cap rates have been most impacted by rising
interest rates this year, with the average increasing 20 basis
points to 6.4 percent over the past 12 months. Auto-repair shops
and restaurants remained attractive investment opportunities
and commanded yields in the high-5 percent area.
* Cap rates trailing 12 months through 2Q18; 10-Year Treasury up to June 29.
Sources: CoStar Group, Inc.; Real Capital Analytics
Dallas/Fort Worth
2Q18 - 12-MONTH TREND
Employment vs. Retail Sales Trends EMPLOYMENT:
Employment Growth Retail Sales Growth 3.2% increase in total employment Y-O-Y
10%
Year-over-Year Change
4,500
• More than 1.2 million square feet of retail space came
online in suburban Fort Worth, an area outside of the
2,250 west I-820 loop extending from as far south as Forney,
west through Weatherford, and north along I-35W to al-
0 most Denton.
08 09 10 11 12 13 14 15 16 17 18*
10%
• The average asking rent advanced to a new peak during
5% the second quarter, reaching $16.87 per square foot.
• Rent gains were widespread in the market over the past
0%
year, with two submarkets recording a decline in averages.
-5% Rent ticked down 0.4 percent in North Central Dallas to
$21.42 per square foot, while the rate plummeted 31.1
-10% percent in Southeast Dallas to $12.44 per square foot.
08 09 10 11 12 13 14 15 16 17 18*
* Forecast
Retail Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
* FORECAST **2017-2022
20%
Central Fort Worth 5.4% -10 $13.87 5.1%
10%
Mid-Cities 5.4% 30 $16.02 10.0%
0%
North Central Dallas 5.5% -20 $21.42 -0.4%
-10%
Southwest Dallas 5.5% -140 $12.48 5.3%
-20%
Overall Metro 5.2% 0 $16.87 3.8% 08 09 10 11 12 13 14 15 16 17 18*
260 bps
Rate
20 bps
4% conclusion of its September meeting. The Fed noted inflation has
broadly reached its target, while household spending and corporate
2% investment remain robust. The Fed indicated an additional rate
CAPITAL MARKETS
hike this year and projects as many as three increases in 2019.
0%
04 06 08 10 12 14 16 18*
Lending costs rise alongside Fed rate increase. As the Fed
lifts rates, lenders have been tightening margins to compete for
Retail Mortgage Originations by Lender loans. Despite these efforts, borrowing costs remain on an upward
trajectory, which is tightening returns and pushing some investors
100%
to seek greater yields in secondary markets. However, though
buyers may try to push back on pricing due to increased loan costs,
75%
National Bank some sellers remain convinced that the strong economy and sturdy
Percent of Total
International Bank
Regional/Local Bank NOI performance substantiate aggressive pricing and a widening
50%
CMBS expectation gap is the result. If interest rates rapidly surge upward,
Insurance
Financial
this gap could quickly widen, slowing transaction activity.
25%
Private/Other
The capital markets environment remains competitive. As the
0%
13 14 15 16 17 Fed tightens policy, global investors have been acquiring Treasurys
in order to capture a considerable yield premium, keeping the
10-year Treasury near 3 percent. Portfolio lenders are providing
* Through Sept. 26
Sources: CoStar Group, Inc.; Real Capital Analytics debt for retail assets, with leverage typically capped at 60 to 65
percent. The sector has become increasingly nuanced, with deals
more scrutinized due to e-commerce competition. Ten-year loan
structures will range between 4.95 and 5.25 percent, depending
on tenancy, location and sponsorship. Continued consumer
National Retail Group spending underpins U.S. growth, supporting retail demand and
driving a 10-basis-point decline in vacancy to 4.9 percent this year.
Visit www.NationalRetailGroup.com
Scott M. Holmes
Senior Vice President, National Director | National Retail Group
Dallas Office:
Tel: (602) 687-6700 | scott.holmes@marcusmillichap.com
Tim Speck First Vice President/District Manager
5001 Spring Valley Road, Suite 100W
Prepared and edited by
Dallas, TX 75244
Jessica Hill (972) 755-5200 | tim.speck@marcusmillichap.com
Market Analyst | Research Services
Price: $250
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline;
U.S. Census Bureau