Commercial Real Estate News – Week of January 31, 2025

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Transcript:

 Welcome to this week’s deep dive into commercial real estate brought to you by Eureka business group, where you’re a retail specialist here in the Dallas Fort Worth market. And, uh, we’re excited to break down, you know, some of the latest news impacting you as a potential investor, at least. Yeah, we’ve got, uh, quite a bit to cover today from the national landscape to what’s happening.

You know, right here in DFW. So, uh, let’s just jump right in. Okay, great. So first let’s zoom out, right? Let’s take a look at the overall health of the U. S. commercial property market. How are things looking nationally? Well, I think despite some ongoing challenges, you know, there are definitely some signs, some potential signs of recovery.

I mean, prices, for example, prices are on the rise and that’s fueled by, you know, an increase in large. Scale deals and, um, an expansion of economic activity across various sectors, right? So this suggests that there’s, you know, growing confidence in commercial real estate at least. Yeah, that’s, that’s encouraging to hear for sure.

Yeah. But you know, on the other hand, it’s important to stay informed about potential challenges too, right? Yeah. And, and I understand there’s some concerns about rising CMBS delinquency rates. Yeah. Particularly, I think this is in the office sector. Yes. Yeah. So CMBS stands for Commercial Mortgage Backed Securities, which are essentially, you know, bundles of loans tied to commercial properties.

So rising delinquency rate in this area, you know, particularly in the office sector. Kind of suggests that, well, while some sectors are, you know, bouncing back nicely, others are still, you know, facing some headwinds. Okay. So we’ve got kind of a mixed bag, right? At the national level. I mean, with some, some positive signs of recovery, but, but also some areas that, that might require, you know, a more cautious approach.

Now let’s, let’s kind of shift our focus a little bit. Let’s shift our focus to the DFW market, you know, or where, where we are. What’s the, what’s the latest on the office market here? What are you seeing? Okay. Thanks. Well, the DFW office market is, is finally showing some signs of life, which is great. Uh, for the first time since 2022, we’re seeing positive net absorption.

And that means, you know, more office space is being leased than vacated. So this is a significant turnaround really after years of stagnation. And it, and it really does suggest a growing demand for office space in the region. Wow. That’s, that’s great news really for, for anyone considering investing in office properties here.

What’s driving this? This renewed demand for office space in DFW, do you think? Well, North Texas, and Collin County in particular, is experiencing this sort of, uh, population boom, right? And this influx of people is attracting major corporations, who are setting up their headquarters here. And that’s, you know, bringing new jobs.

So this population and job growth is fueling demand for various commercial real estate sectors, including retail. You know, more people means more need for places to work, places to shop, places to dine, which is, you know, good news, for investors at least. Yeah, it’s all connected. And speaking of retail, um, I understand there’s been this kind of surprising shift in Texas rent prices.

You know, we always hear about Austin being so expensive, but, but it looks like Dallas is kind of taking the lead there. Yeah. For the first time since 2015, Dallas has overtaken Austin as the Texas Metro with the highest rent prices. So this is interesting because it suggests It’s this kind of shift, right, in the dynamics of the Texas real estate market, and it may, you know, create opportunities for savvy investors.

It’s something to watch closely, you know, if you’re considering retail properties in both Dallas and the wider DFW area. Yeah, definitely. Definitely something to keep in mind for sure. Now, let’s, let’s dive into the world of retail, right? I mean, this is, this is our specialty here at Eureka Business Group.

What, what are some of the key trends that you’re seeing, um, you know, in this sector in particular? Yeah. Well, one of the most interesting trends, I think, is the explosive growth of, uh, you know, the second hand market. Um, I mean, it’s become a 53 billion industry, and it’s driven by, you know, a growing preference for, you know, sustainable and unique finds, especially among, you know, younger generations.

So this signifies a shift in consumer preferences towards, you know, more conscious consumption, and, you know, creates opportunities for retailers who can You know, tap into this market. Yeah, for someone looking to invest in retail, I mean, this secondhand market trend seems, seems like a significant development.

Are there any specific examples of how this trend is playing out in the DFW market, you know, locally? Absolutely. Companies like Plato’s Closet and Uptown Cheapskate, for example, Which specialize in, you know, secondhand clothing and accessories. They’re seeing success with, um, you know, large store footprints, often in, in class B shopping centers.

So this suggests that there’s, you know, there’s a growing demand for these types of businesses and that they can be successful in, in a variety of locations. That’s a, that’s a valuable insight for sure, you know, for potential investors looking at retail properties. Yeah. Um, and it’s, it’s also interesting to see that even traditional retailers are kind of, they’re catching onto this trend, right?

American Eagle, H& M, Kate Spade, they’re all incorporating resale into their businesses. It seems like a smart strategy to, you know, to adapt to these changing consumer preferences and potentially, you know, tap into a new revenue stream. It certainly is. Yeah. And while we’re on the topic of, uh, you know, retail success stories, we can’t forget about the fast casual restaurant industry, right?

Yeah. Brands like Chipotle, Kava, and Wingstop. These guys are experiencing rapid expansion, record profits. Yeah. And, you know, that makes them, you know, attractive tenants for shopping centers. Yeah. What’s, what’s driving the success of these fast casual restaurants, um, you know, in such a competitive market?

I think they’re attracting, you know, a pretty loyal customer base, honestly, by offering, you know, quality food at affordable prices, all within a, you know, convenient and efficient dining experience. So these brands are appealing to a wide range of consumers and they’re often, you know, sought after tenants, right, by landlords who are looking to attract foot traffic and create, you know, a desirable tenant mix.

Right. Yeah. A strong tenant mix can make a property more, more attractive. You know, to investors. Now, let’s, let’s kind of shift gears for a second, um, and talk about a technology that’s, you know, been making headlines across, across all industries, really artificial intelligence, AI. How is this technology impacting the retail landscape?

Do you think? Well, AI is being used in a variety of ways. To enhance, you know, the retail experience, companies like Lowe’s, for instance, they’re using AI powered digital twins of their stores to optimize layouts, optimize operations, you know, improving efficiency and potentially reducing costs. Walmart and Amazon are, you know, they’re kind of leading the charge in AI driven logistics, so, you know, streamlining their supply chains, enhancing delivery capabilities, things like that.

So AI is not just. You know, this futuristic concept, it’s already being implemented in practical ways that, you know, are impacting the retail industry. That’s fascinating. But AI’s impact, I mean, it extends beyond retail, doesn’t it? I mean, it’s going into all these different areas. Yes, yes, absolutely. The growth of AI, you know, is creating a surge in demand for data storage facilities.

And we’re seeing companies, you know, like DeepSeek, which is a, Uh, Chinese AI startup, they’re making waves in the tech world with their innovative technology that relies on, uh, you know, older generation NVIDIA chips. And this is making AI more accessible and affordable, which leads to, you know, even more increased demand for data storage.

Yeah, I can see how, I can see how that would happen. And this increased demand for data storage, I mean It seems like you would have a significant impact on, you know, the real estate market. Are there any notable developments in this area, would you say? Well, there’s the Stargate project, for example, which is a joint venture backed by, uh, you know, Oracle, SoftBank and others.

And they’re aiming to invest 500 billion in new data centers. So this massive investment highlights, you know. The scale of the AI boom and its potential impact on real estate. I mean, data centers require large amounts of space. They require specialized infrastructure. So it’s creating opportunities, you know, for developers and investors.

However, there are also some, you know, challenges associated with this as well. What kind of challenges are we, are we talking about here? Well, you know, supply chain bottlenecks and a shortage of, you know, skilled labor are making it difficult to keep up with the, the rapidly increasing demand for these data centers.

These challenges, I think, underscore the importance of, you know, careful planning, careful execution for any project in the sector. So while, while there’s, you know, potential for, for profit, investors need to be aware of the, you know, the complexities. Involved in data center development, now shifting gears to the industrial sector.

Right. We’ve seen this continued boom in e commerce and a trend toward, you know, reshoring, bringing manufacturing back to the U. S. How, how is all of this impacting the industrial real estate market? I mean, the industrial sector is experiencing, you know, really robust growth. Thanks to these trends.

Investors are drawn to. You know, industrial properties for, you know, their stability and their consistent growth. E commerce requires, you know, vast warehouse and distribution centers. Reshoring is bringing manufacturing facilities back to the U. S., all of which contribute to a strong demand, really, for industrial space.

Yeah, but even in a, even in a strong sector like industrial, you know, there’s always, there’s always a need to adapt. To evolve, right? What, what are some of the key trends that you’re, that you’re seeing kind of shaping the industrial real estate market today? One of the key trends I think Is is the rise of, you know, flex space, which allows tenants to kind of customize their industrial spaces to meet their specific needs, and this flexibility, I think, is attractive in today’s, you know, rapidly changing business environment.

Another important trend, I think, is reshoring itself. Right. Which is creating opportunities for developers and investors to cater to the needs of these manufacturers who are, you know, returning to the U. S. OK, so for someone, you know, interested in industrial real estate, I mean, understanding these trends is crucial, right, for for making those informed investment decisions.

Now, before we before we wrap up this part of our deep dive. Let’s talk about the financial landscape, which can be, you know, a bit uncertain at times. Interest rates have been a, you know, a hot topic lately. What’s, what’s the latest thinking on where rates are headed? Well, there’s a lot of, you know, discussion, right?

Yeah. About whether interest rates will stay, you know, higher for longer, or eventually return to what we might consider normal levels. It’s, it’s a key consideration for real estate investors. Because interest rates directly impact borrowing costs. Yeah. That’s a, that’s a crucial point for sure. What insights can you offer to our listeners who might be, you know, concerned about the impact of interest rates, um, on their investments?

Well, while, you know, some investors are feeling apprehensive about the potential for rates to remain high, historical data kind of suggests that, um, you know, this recent increase in rates might simply be a reversion, right, to the long term average. If that’s the case, it could, you know, signal a, a normalization of the market rather than a sustained period of, you know, high interest rates.

It’s important for investors, I think, to, to consider the bigger picture and not get caught up in, in short term, you know, market fluctuations. Yeah, that’s a, that’s a valuable perspective. So, so while it’s, while it’s essential to stay informed, you know, about interest rate movements. a long term view, you know, can help investors make, you know, more strategic decisions.

Now, besides traditional financing options, are there any, any alternative financing avenues, um, you know, emerging in the commercial real estate market? Yeah, we’re seeing this, uh, you know, surge in short term property financing from non bank lenders. And the surge, you know, indicates that borrowers are, they’re seeking those alternative financing options, especially You know, traditional banks remaining cautious in the current economic climate.

Okay. Yeah. This increased activity from non bank lenders. I mean, it seems like a positive development, right? For borrowers who, you know, who might not qualify for, you know, traditional loans. It also suggests, you know, a dynamic and evolving lending market, which could benefit, you know, those who are, those who are seeking, um, creative financing solutions.

Now, before, before we move on to the next part of our deep dive, let’s, let’s kind of recap, you know, what, what we’ve covered so far about the national commercial real estate market. And, and the trends that are, you know, shaping the, the DFW market. Sure. Yeah. I mean, the U. S. commercial real estate market is, you know, showing those signs of recovery with prices trending upwards, increased activity, you know, in, in large scale deals.

However, it’s important to, you know, be aware of the potential challenges like those rising CMBS delinquency rates, particularly in the office sector. Now, in the DFW market, we’re seeing some positive signs, you know, in the office sector with, with increased demand for space driven by, you know, population growth and corporate relocations.

The retail sector is also, you know, experiencing growth with the rise of, of the secondhand market and the continued success of, of fast casual restaurants. Right. And we’ve also discussed the impact of AI. Yeah. Right? On, on the retail landscape. Yeah. And the broader real estate market. Creating those opportunities in, in areas like, like data storage facilities.

The industrial sector is also, you know, quite robust thanks to that e commerce boom and that trend towards reshoring. Yeah. It’s, it’s a dynamic market really with, with opportunities and challenges and staying informed about, you know, the latest trends, working with experienced professionals like, you know, Eureka Business Group can help investors make, you know, more strategic decisions.

That’s a, that’s a great point. Understanding the nuances of, of each sector, recognizing, you know, potential challenges, working with experts. I mean, it can make a significant difference. Now, as we head into the next part of our, of our deep dive, um, I’m, I’m curious to explore some, you know, specific examples of, of successful projects and developments in the DFW market.

Um, you know, stay with us as we, as we delve deeper into the, you know, the exciting opportunities available in this, Yeah. We’ll get into some of those specifics next. Yeah. But before we, uh, move on to those specific projects, I, uh, I’d like to add that this surge in short term property financing from, you know, non bank lenders, it, it really signifies a dynamic and evolving lending market.

And, um, you know, that can benefit borrowers who are seeking alternative financing options. You know, it’s about finding the right fit for, for your specific needs and circumstances. That’s a, that’s an excellent point. Having options is always a, is always a good thing, especially in in today’s market. Now, you mentioned some exciting projects and developments that are happening in the DFW market.

Can you share some, some specific examples that that illustrate these trends that we’ve been discussing? Absolutely. Um, let’s start with the industrial sector. There’s this, uh, massive project underway in, uh, Rockdale, Texas. It’s a 5, 300 acre advanced manufacturing site being developed on a former aluminum smelter site.

So it’s a, it’s a testament to the reshoring trend that we talked about earlier. And it really demonstrates the scale of investment that’s flowing into, into the sector. Wow. That, that’s a huge project. Yeah. What makes this site particularly attractive for, for manufacturers? Well, it boasts abundant power, water rail, and interstate access, essential infrastructure for, for large scale manufacturing operations, but it’s not just an industrial park.

It’s being marketed as a mixed use super site with plans for residential, retail, office, hospitality, and leader facilities. That’s, that’s fascinating. Integrating those. those different elements into, into a single development creates a more, a more holistic environment for, for businesses and their employees.

It’s a smart move that recognizes the, the interconnectedness of, of various aspects of life and, and work. Exactly. And, and this type of, you know, integrated development can be a real draw for companies looking to relocate or expand. You know, it offers convenience, a sense of community and, and the potential for, for increased productivity.

It’s a win win for, for everyone involved. And, and speaking of, you know, strategic moves, another company making headlines in the, in the industrial sector is EQT Exeter. We touched on their, on their decision to shift their focus entirely to industrial real estate earlier. Can you elaborate on, on why this move is, is so significant?

Well, EQT Exeter is a, is a major player in the, in the real estate industry. And uh, Their decision to pull out of multifamily investments and go all in on industrial underscores the confidence that that institutional investors have in the long term growth potential of industrial property. So it sends a strong signal to other investors that that this sector is is a smart bet in in today’s dynamic market.

So for someone looking to, you know, diversify their portfolio or enter the commercial real estate market, I mean, industrial properties seem like a very attractive option. Now, let’s shift gears again and talk about the financial landscape. We talked earlier about the uncertainty surrounding interest rates and, um, you know, some investors are concerned about the possibility of rates staying higher for longer.

How can investors navigate this uncertainty and make, you know, informed decisions? It’s understandable that that investors are feeling a bit apprehensive. The recent run up in U. S. Treasury bond yields has has certainly added to the to the uncertainty. However, it’s it’s essential to to consider the historical context.

The data suggests that this recent increase in bond yields may simply be a reversion to the long term average. And this perspective encourages, you know, informed decision making rather than reacting to to short term fluctuations. So while While it’s important to stay informed, you know, about interest rate movements, a, a long term perspective can help investors make, you know, more strategic decisions.

Now we’ve, we’ve talked a lot about the, the industrial sector. What about retail? What are some of the opportunities and trends that you’re seeing in the, in the DFW retail market? Well, the, the DFW retail sector remains strong, you know, the population demand for, for convenient and high quality retail experiences and the adaptability of, of businesses to meet those demands all point to a, to a positive future.

And don’t forget the role of technology in shaping the retail landscape. AI is already revolutionizing, you know, supply chains, store layouts, and, and customer experiences. You, you’re right, keeping up with, with these technological advancements is, is crucial for, for retailers and, and investors alike. Now, earlier you mentioned the rise of, of non bank lenders in, in the commercial real estate market.

Can, can you elaborate on the, on the benefits that they, that they offer to, to borrowers? Yeah, non bank lenders are often more willing to take on, on risk, which can be, you know, beneficial for developers and investors looking for, you know, creative financing solutions. And their flexibility can be a real asset in a, in a market that’s, that’s constantly evolving.

You know, they provide alternative financing options for, for borrowers who may not qualify for traditional bank loans, which increases liquidity in the market and provides more options for, for borrowers. That’s, that’s great for, for borrowers seeking, seeking funding for their projects. Yeah. Now, let’s, let’s zoom back in on the, on the DFW retail scene.

We talked about the success of, of fast casual restaurants and, and resale concepts. What are some other trends that are, that are catching your attention? One trend I find particularly interesting is the, the growing popularity of, of food halls. These curated culinary destinations offer a. A diverse mix of dining options, often with a focus on on local and artisanal vendors.

And they’re, they’re becoming social hubs, drawing crowds with their, their vibrant atmosphere and, and unique culinary experiences. It’s like a, like a modern take on the, on the traditional shopping mall food court, but, but with a much more elevated and sophisticated vibe. Precisely. And, and these food halls are often strategically located in high traffic areas like, like mixed use developments and, and revitalized urban districts.

So they’re becoming anchors for, for these developments, attracting foot traffic and creating a sense of community. It sounds like a, like a smart strategy for developers who are, you know, looking to create, create vibrant and, and, and attractive destinations. Yeah. It’s a great example of how, you know, creative retail concepts can, can revitalize areas and, and.

drive economic growth. Now, we’ve all heard about the, the challenges that, that brick and mortar bookstores are facing with the rise of, of online retailers. I mean, is, is there any, is there any hope for these, for these traditional bookstores? Absolutely. Brick and mortar bookstores are, are making a comeback.

There’s, there’s something special about the, the experience of browsing a physical bookstore, discovering new authors and, and connecting with. fellow book lovers and smart retailers are capitalizing on this resurgence of interest in physical bookstores. Look, what are these, what are these bookstores doing to, to adapt and thrive in the, in the digital age?

Well, they’re creating, you know, welcoming and engaging spaces. They’re, they’re hosting events and, and offering a carefully curated selection of books that appeal to their target audience. They’re incorporating cafes, co working spaces, and, and other amenities to enhance the digital It’s the, the customer experience.

So they’re, they’re becoming community gathering spots, blurring the lines between, between retail and, and lifestyle destinations. So it’s a great example of how, you know, brick and mortar retailers can, can adapt and thrive in the digital age by, by offering a unique and valuable experience that, that online retailers simply can’t replicate.

And it’s, it’s encouraging to see these, these traditional businesses adapt and find, you know, new ways to, to connect with, with customers. Now, before, before we move to the, to the final part of our, of our deep dive, I think it would be helpful to, to recap some of the, the key takeaways from our, from our discussion so far.

Sure. Yeah. I mean, we’ve, we’ve covered a lot of ground from the, the overall health of the, uh, the commercial real estate market to the, the specific trends that are shaping the retail and industrial sectors in, in DFW we’ve, we’ve seen how factors like population growth, technological advancements, and shifting consumer preferences are, are driving change in the market.

We’ve also highlighted the importance of, you know, adaptability, innovation, and, and strategic decision making for, for both businesses and, And investors, the commercial real estate landscape is, is constantly arriving and staying ahead of the curve is, is essential for, for success. We’ve also seen examples of how, how different sectors are converging, creating, creating exciting new opportunities for investors who are willing to, you know, think outside the box.

The, the 5, 300 acre mixed use development in, in Rockdale and, and the resurgence of food halls are, are just two examples of, of this trend. Now, as, as we move into the, into the final part of our deep dive, let’s shift our focus to the, the future of commercial real estate and explore some of the emerging trends that, that will shape the industry in the, in the years to come.

Welcome back to the final part of our deep dive into commercial real estate. You know, with Eureka Business Group, we’ve covered a lot of ground today from, you know, national trends to specific developments right here in DFW. Now let’s, let’s kind of look ahead a little bit, right. And consider what the future holds for.

for commercial real estate. What do you, what are you thinking about? Well, one of the most fascinating and potentially disruptive trends I’m seeing is, is the convergence of various real estate sectors. You know, the lines are blurring between traditional categories like, like retail office and industrial.

Uh, we’re seeing these, you know, mixed use developments that, that seamlessly integrate these sectors and it’s creating, you know, these vibrant and dynamic communities. Yeah, we, we discussed that, uh, that 5, 300 acre advanced manufacturing site in, in Rockdale, Texas, right? Yeah. Which, which is a great example of this trend.

It’s not just an industrial park, but a, you know, a mixed use super site with plans for, for residential retail office, hospitality, and, and leisure facilities. And this kind of, you know, integrated development is, is becoming increasingly common. What’s driving this convergence, do you think? Well, it’s a, it’s a combination of factors, really.

Uh, the rise of e commerce, for instance, that’s blurred the lines between, between retail and industrial, creating a need for, you know, logistics and distribution hubs that are integrated with, with retail spaces. Um, the shift towards, you know, remote work and flexible work arrangements, that’s prompting companies to rethink their office needs.

So that’s leading to the development of, you know, co working spaces and mixed use environments that cater to, you know, a more, a more mobile workforce. And, and let’s not forget You know, the, the growing demand for experiences, people, people want to live, work and play in vibrant communities that, you know, offer a mix of amenities and opportunities and these integrated developments cater to that demand, right?

Creating a sense of place and fostering a strong community spirit. I mean, this all sounds very promising for the future of, of real estate, but I imagine this convergence also creates new challenges for, for investors. Absolutely. It requires a more, a more holistic and integrated approach, I think, to, to real estate investment.

One that considers the interconnectedness of, of different sectors and the evolving needs of, of businesses and consumers. It’s no longer enough to specialize in, in just one type of property, you know, successful investors will need to understand the broader market dynamics, the interplay between different sectors and, and the factors that are driving demand in, in specific locations.

So, for someone looking to, to invest in commercial real estate, a, a deep understanding of the market and a willingness to adapt to these emerging trends are, are pretty crucial it sounds like. It seems like working with, with experienced professionals who can provide guidance and insights would be, would be invaluable in, in this, in this kind of evolving landscape.

Absolutely. Navigating the complexities of, of the commercial real estate market. requires, you know, expertise, requires market knowledge, a network of trusted professionals. That’s, that’s where, you know, Eureka Business Group comes in as, as your retail specialists in the, in the DFW market, we, we offer, you know, a wealth of experience and knowledge to guide you through, you know, every step of the investment process.

That’s right. Our team at Eureka Business Group is dedicated to helping you, you know, find the right opportunities, navigate the complexities of the market, and, and achieve your investment goals. Whether you’re interested in, in retail, industrial, office, or, or mixed use developments, we, we have the expertise and, and the resources to, to support you.

You know, this, this deep dive has provided a, a, A comprehensive overview, I think, of the current state of the, of the commercial real estate market, both nationally and here in DFW. But but as you consider your, your investment strategies, we encourage you to think beyond traditional categories and explore the exciting opportunities that are emerging at the intersection of these sectors.

You know, the future of real estate is about connectivity. It’s about adaptability. And creating spaces that, that foster a sense of community and, and enhance the, the human experience. So if, if you’re looking for, you know, expert guidance and tailored solutions for, for your real estate needs in, in the DFW market, don’t hesitate to, to reach out to us at Eureka Business Group.

We’re here to help you navigate this, you know, exciting and dynamic industry and, and make informed decisions that, that align with your, you know, investment goals. Thank you for joining us for this deep dive into the world of commercial real estate. We look forward to connecting with you and helping you unlock the potential of the DFW market.

** News Sources: CoStar Group