Last week we highlighted that DFW captured a top spot in the most “competitive” cities in the US and globally according to Site Selection magazine.
Going hand-in-hand with that is our market’s ability to create jobs. These job gains obviously come from companies growing organically, as well as large relocations (like Toyota). One area that flies under the radar, however, is the role of new companies forming. These businesses, often small, are critically important in driving growth – and help define an area’s “vitality”. Quite simply, these smaller companies are sometimes the innovators of products and ideas – and can be the genesis of tomorrow’s large corporations that define a region. For DFW, think back to the early days of TI, EDS, and Frito-Lay.
The chart below summarizes the major US markets by the number of NET NEW companies (employing less than 50 people) created between 2010 and 2013 – essentially looking at the strength of the regional economies since the start of this growth cycle. I get tired making this observation, but DFW’s pro-growth, low-cost business environment, and “entrepreneurial spirit”, helped propel our community to the top ranks, based on both raw numbers and percent. Overall, we had more than 7.500 net new small businesses created, or 5.7%. Few markets come anywhere close to this level of expansion. In addition, DFW scored high in the medium-sized company category, with that segment expanding by 10% over the period.
What’s important here is that site selection professionals and relocating companies often use this metric to compare an area’s vitality or ability to innovate. In the case of DFW, our market continues to stand out as a place to do business and to grow businesses – which should mean that we will continue to win more than our fair share of economic growth over the foreseeable future.
The publisher for Site Selection magazine just released a report on the most competitive cities globally. Their approach utilized hard data, augmented by local and new project investments, buttressed by a survey of site selection executives regarding “competitiveness”. Their goal was to identify “true city competitiveness” by highlighting the top-five cities in a dozen industry sectors.
DFW jumped out with only a quick skim of the executive summary! Why? Because we were in the top-five cities across 10 of the 12 industry sectors. We talk all the time about our region’s diversity and its value. This is a clear example of how valuable that diversity is as a driver and how it gives us an incredible edge for both organic growth and business relocations – and may partially explain the high level of job gains we have been seeing. The chart below highlights the industries where DFW scored in the top five.
So with such a strong showing, the next question has to be – who was ahead of us? Well, only one global / US market beat us with 12 of 12 – that was Dubai. This emphatically positions DFW as an up-and-coming world city. Attached is a link to last week’s press release. http://siteselection.com/press/releases/151103%20WMCC.html
Overall, industrial vacancy is still below its historic norm – underscoring the broad strength of our DFW economy. Even though the construction pipeline is responding to the high demand, the number of mid-sized blocks is down appreciably. Back in 2010 there were 224 blocks available over 100,000 SF. Currently that number has almost been halved (see bar chart below). Interestingly, our office sector tells a similar story over the same period as high demand has set the stage for new construction and rising rents. In the case of industrial, rents are up roughly 5 percent in the last year – an almost unheard of increase based on our market, historically.
The doughnut chart below also drives this point home. While the very large spaces (over 500,000 SF) have increased due to new construction, the square footage available for 100K-200K and 200K-500K blocks are markedly reduced – to the tune of 18 million square feet.
We see continued high-demand driving rental rates through 2016, although rents have risen so quickly, we anticipate a plateauing (or slowing) as we move into 2017.
It should come as no surprise that DFW has risen to one of the top 10 markets in the US for multifamily permits. The chart below tracks total multifamily permits against annual job gains for these markets.
What is important here is that is that DFW is one of the strongest job markets in the country. We’ve commented many times that we’ve been adding jobs at a better than 100,000-per year clip for a few years now. And, that is the key difference. For me, it is all about the underlying economic engine. Take DC, for example – after coming not of the recession strong, sequestration kicked-in and they are now struggling through the job erosion and slow-growth brought about by those policies. In contrast, our rapid growth is fueling development across all real estate categories.
What is really critical to understand is that we are not late in the 4th quarter or anywhere near that final 2 minute hurry-up offense. Based on general economic factors for the US and the strength of our local engine (remember 2017 is when Toyota’s and Liberty Mutual open) we still have continued expansion ahead – as such, we are probably in the early to mid-part of the 3rd. That leaves us a lot of game to play. In addition, our multifamily metrics are strong! As you can see below, apartment rents are rising fast – and the average occupancy rate is 95%. Hey, that means our apartment units are running essentially full. And, if that is not enough, fully a third of DFW apartment units report occupancy above 97%. Those are solid metrics, by any standard.
Next week, we will take a closer look at the new single family home sector and assess the potential under-supply shaping DFW market demand today.
It is hard to see an article these days where “millennials” are not mentioned. Be it their housing preferences, their impact on office space utilization and buildout, or retail spending – they are the hot topic.
Millennial ages extend a bit younger than the 25-34 years used, but this is the core of the working age group that is really impacting housing demand, shopping, and working environments. By doing this, we were also then able to “map” this group throughout DFW (the map below is a close-up of our greater urban core).
What was interesting is that purely based on age, there are 36,000 millennials in our core. Not a bad number, right? Well, if you look at the variety of variables that comprise “lifestyle” that number increases to 67,000 – and 51% of our urban core’s population. Intuitively, this kind of concentration makes sense given what we see in the housing and job picture that is heavily influenced by Uptown. Also impactful is that the millennial’s average income is $79,000! Even though that is below the region ($84,700), don’t be so quick to jump to conclusions – their income is 18% higher than their age-based regional counterpart – and this is an average income for mostly a smaller household. So, there is some very solid spending potential here.
Dallas continues to make the national real estate headlines about our office construction pipeline. While the big number is always quoted – 7.7 million SF of space now under construction – there is little to no commentary about what is driving this number. I’m somewhat sensitive about this because, being in Texas, there is sometimes to leap by pundits to the impact of energy on our TX economy.
As we all know, our market has become very diverse, and while energy is a part of our make-up, it is not the driver it was back in the 1980s or 1990s. Rather, our sizable construction pipeline is made up of several diverse build-to-suits. When we think of these, Toyota clearly comes to mind, as does the newest phase for State Farm. In addition, other smaller projects round out the list, such as 7-Eleven and Raytheon. As of the beginning of the third quarter, 48% of our pipeline is accounted for in the large BTSs. The remain 10% is in spaces that have been preleased in multi-tenant buildings.
Overall, this level of “preleasing” is a solid showing and does not suggest that our market is over-heated. What’s even better, is that this economic cycle still has legs, so we expect rent gains to continue, even though vacancy may begin to drift up gradually in 2016.
We’ve been reporting for some time now about DFW’s stellar job gains, which have been running in that 100,000+ territory. Our colleague, Brad Selner, made the observation several times that the only markets that have been beating us are really large markets like New York and LA – both much larger than DFW based on population. Brad went on to ask if we could “correct” for that sizing difference.
The chart below does that. What we did was pretty simple – we took the most recent annual job gains in the major markets and ranked them against their total population base. Because this resulted in some odd and unintelligible ratios, we took those metrics and indexed them to make them make sense. So, like with all “indexes”, above 1.0 is better than average and anything much below 1.0 is lagging.
As we expected, DFW rose to the top. In fact, based on the index, DFW has been churning out 38% more jobs than our total population base would suggest. The only markets that beat us are San Jose and Seattle (Denver is ahead, but a close tie). Essentially, the markets which we labeled as “top guns” (using the gold bars), currently have exceptionally strong economic engines. In some ways, the markets that rose to the top in this analysis are not a surprise given their strong in-place drivers, such as location and cost of doing business here in DFW or technology in the case of San Fran and San Jose. It is important to note that even after indexing, DFW is at the top in total new jobs added by a wide margin.
The most current US numbers peg DFW at more than 6.9 million people. If you look back in time, over several economic cycles, our community has expanded dramatically – and consistently! For example, in 1970 we had less than 2.5 million people living in the Metroplex. Granted, that is a really long time ago… If we go back to the end of the tech boom, however, we have added 1.8 million new residents. Importantly, this in not taking place in a vacuum. Rather, it is a trend that is being seen across Texas and many of the southern US states.
Forecast are always tough. The state brackets their projections with low, medium, and high range estimates. Looking at the “mid-range”, Texas is expected to hit 32.7 million residents by 2030. That’s an increase of 5.7 million. In comparison, if their higher forecast is hit, that translates into 10+million new people in the state. For DFW we have relied on the mid-range forecast. Under that approach, DFW is expected to reach 9.0 million by 2030. That is more than a 30% increase – and is a faster rate of increase than the state. That kind of growth is not at all surprising – and is totally reasonable given we added 500,000 since 2010.
For commercial real estate professionals like us, this growth will fuel demand for all types of uses. Housing is the obvious one, but it will also change our built landscape significantly because these new residents will require new retail, expanded job centers, and new distribution space to meet their growing needs. Likewise, new infrastructure (schools, roads, utilities, and the like) will have to be developed. And, as we have noted in the past, over this not-to-distant future we will see both greenfield development, as well as infill across the metroplex to accommodate these new residents.