Welcome back to the Deep Dive. This week, we’re going to take a deep dive into commercial real estate. Oh, should be interesting. Yeah, we’ve got a whole stack of news articles and reports and analyses, uh, you know, everything you sent over. Great. Really focusing on, you know, what’s going on in this last quarter of 2024, especially here in DFW.

Yeah, you picked a really interesting time to do this. Oh! Yeah, because we’ve got like this weird puzzle going on. Okay. On the one hand, investment in commercial real estate is down significantly this year. Right. I mean, transaction volume in Q3 hit its lowest point since 2011. Yeah, I saw that 2011 number.

Whoa! And I was like, wait a minute. Yeah. But you know me, always looking for the silver lining. Yeah. And there are signs pointing to a possible rebound in 2025. Yeah. 2025. True. So what’s making everyone so optimistic? Well, just think about it. The 2024 election just wrapped up. Right. And that alone injects, like, a dose of certainty back into the market.

Yeah, that makes sense. Investors don’t like uncertainty. Election years, they tend to kind of hold back and wait and see what happens. So is that what’s driving up the uncertainty? Commercial property prices. I was looking at the costar data for October and their repeat sales transactions. So, you know, properties being sold again totaled over 10 billion higher than the same time last year.

Yeah. That’s a big jump. Yeah. Yeah. You’re exactly right. That is a key indicator that investors are feeling more confident. Yeah. They’re willing to make those big purchases again. Yeah. And it’s not just the election results. Okay. The Federal Reserve cutting interest rates plays a big role too. Right. Of course.

Makes borrowing more attractive. So investors are more comfortable taking on debt. to do deals. So it’s like a chain reaction. Exactly. Lower rates, more borrowing, more deals. Exactly. More activity. Yeah. Okay. So where are investors focusing their attention these days? Are they playing it safe or are they, you know, branching out a little?

That’s what’s really interesting. We’re seeing a wider range of opportunities pulling investors in. Data centers are hot right now, driven by You know, our constant need for more data storage and processing. And then you’ve got investors looking at distressed assets, office buildings, shopping malls, looking for bargains, and a potential turnaround.

So like there’s opportunity in the uncertainty. Exactly. Yeah, I like that. They’re seeing the potential. Okay, well, I definitely want to dive deeper into the performance of those specific sectors, DFW. Let’s do it. Okay, let’s start with industrial real estate. All right. I mean, it’s booming, especially here in DFW.

Well, booming. It’s actually leading the nation in industrial sales. That’s right. Even surpassing the Bay Area with over 3. 3 billion dollars in sales in just the first three quarters of this year. Yeah, through Q3. Yeah. Crazy numbers. Yeah, it’s huge. I remember reading about Stone Peak buying that massive 1.

1 million square foot industrial property in Fort Worth. Oh, yeah. for 11 million. Wow. It just shows the confidence investors have in this area. That’s a huge vote of confidence for sure. Yeah. DFW’s location is great, strong economy, access to major transportation hubs. Right in the middle of everything.

Yeah. Makes it perfect for logistics and distribution. Yeah. Can’t beat it. And all that high demand is pushing vacancy rates lower than the national average. True. But I did notice that they’re slightly higher than last year. Yeah, that’s true. Exceeding both national and historical averages for our region.

Yeah, you gotta look at those nuances, right? Yeah, so even in a strong sector like industrial, you gotta, you know, pay attention to the details. Yeah, it’s not a one size fits all situation. All right, well let’s shift gears to office real estate. Okay. This sector is facing some serious challenges right now.

Okay. Definitely some headwinds. Yeah, and it’s currently almost half of all distressed assets in the commercial real estate market. Yeah, almost half. It’s a lot. That’s a pretty big number. Yeah, it is. What’s causing all this distress in the office sector? Is it all because of work from home? Work from home is definitely a factor, but it’s not the whole story.

Okay. Rising interest rates are hitting this sector hard. Right. A lot of companies are downsizing, re evaluating their office space needs. Yeah. And that leads to more empty offices. Makes sense. And Nathan Things, he’s a senior VP at Kidder and Matthews. Okay. He pointed out some really alarming signs. Oh, like an increase in unpaid vendor invoices and property liens.

It’s not good. So those are like red flag, definitely red flag that a property might be in trouble. Yeah. Early warning signs that they’re struggling financially, but are there any bright spots in the office sector? There are some glimmers of hope. Okay. Fester, they’re a real estate firm focused on retail.

Okay. But they’re seeing strong leasing activity in some markets, like Denver. Really? Yeah. So it’s not all doom and gloom. Okay. Certain office spaces are still in demand. Right. Especially those catering to specific industries or offering really desirable amenities. So it sounds like adaptability is key.

Absolutely. The ones that can adapt are the ones that will survive. Which brings us to our next sector, retail. Right, retail. This one’s been on a wild ride for years. Yeah, no kidding. With the rise of online shopping. It’s been a roller coaster. So what are we seeing now? We’re seeing a fascinating transformation.

Okay. Companies are adapting in really creative ways. Give me an example. Okay. Burlington stores. Okay. I know Burlington. They’re strategically acquiring vacant stores, a lot of which were occupied by struggling retailers like Bed Bath Beyond. So they’re capitalizing on those closures. Exactly. Yeah.

Potentially getting prime real estate at a discount. Smart. And they’re not alone. Okay. We’re seeing physical stores. Taking on new roles in the retail ecosystem. Oh, really? Yeah. Many are now key players in reverse logistics, reverse logistics. It’s basically handling returns from online purchases. Okay. So for our listeners who might not be familiar with that term, imagine you order something online and you need to return it.

Instead of shipping it back, you can just take it to a physical store. Much easier. So much easier. And it probably saves the retailers money on those return shipping costs. And it gets people back into stores. Exactly. More foot traffic. So maybe they’ll buy something else while they’re there. You got it.

It’s a win win. It is. Retailers are getting savvy about blending the online and offline shopping experience. So retail’s not dying, it’s just evolving. That’s a great way to put it. It’s evolving. Alright, well let’s zoom in on our own backyard now, Dallas Fort Worth. Okay. What’s going on here in the commercial real estate world?

Well, one interesting trend is the rise of upscale retail. Oh, really? Yeah. Particularly in Collin County’s outer suburbs, high end brands are doing really well there. Interesting. Driven by population growth and people wanting newer, more luxurious shopping experiences. Yeah. I guess those areas are growing fast.

Yeah. And there’s a big development in the works that could make Collin County even more attractive. Oh, yeah. A 220 million amphitheater. Wow. That’s a serious investment. Yeah. They’re really aiming to make Collin County a destination. Yeah. So, not just for shopping, but for entertainment, too. Exactly. And it, it ties into this broader trend of creating vibrant, mixed use developments.

Yeah. Retail, entertainment, residential, all in one place. So we’ve got this booming industrial market, a struggling but adapting office sector. Trying to find its way. And retail is evolving. Absolutely. Changing with the times. It’s a dynamic picture, that’s for sure. Very dynamic. Lots going on. Well, to Really get the full picture.

We need to talk about those macro trends. Yeah, good point. Things like inflation, consumer spending. Those always play a big role in real estate. Alright, let’s dive into those next and see how they’re impacting things here in DFW. Let’s do it. Yeah, when we talk about macro trends, inflation’s kind of the big one.

Yeah, it’s cooled down but it’s still above what the Fed wants, right? Right above their target. Yeah. And that makes what they do next with interest rates a big deal for commercial real estate. It’s like everyone’s just waiting to see which way rates will go. Exactly. Any change there could really shake things up.

Yeah. It’s a tricky balance, isn’t it? It is. Inflation and interest rates. Mm hmm. Investors are watching carefully. Oh, yeah. For sure. There’s another macro trend we should talk about, and it’s actually looking pretty good. Oh, which one? Consumer spending. Oh, right, right. People are still out there shopping, despite all the economic uncertainty.

Yeah, they are. I bet that’s good news for the retail sector. It is. Especially for those who are adapting like we talked about with Burlington stores. Taking over those vacant retail spaces. Yes. Smart move. Strong consumer spending could really help soften the blow of rising prices and all the uncertainty.

Shows how resilient the market can be. Exactly. Especially in sectors that are, you know, meeting those everyday needs. Well, speaking of resilience and adaptation, I wanted to mention something I read about Dallas. Okay. This whole debate about getting rid of parking minimums for new developments. Oh, yeah.

Sounds like it could really change the city. It could. It’s a big shift in how cities are thinking about planning. Yeah. So, parking minimums are these rules about how many parking spaces developers have to include in new buildings. Right. They’ve been around forever, but now cities are starting to question them.

So, for those listening who maybe haven’t heard about these parking minimums before, why are they being reconsidered? Well, the argument against them is that they lead to way too many parking lots, which take up space, contribute to sprawl, and they don’t encourage walking or biking or public transit. So it’s about more than just parking.

Exactly. It’s about how we design our cities. Creating places that are less car dependent. Right. More walkable, more people friendly. So what’s going to happen in Dallas? Are they actually going to get rid of these parking minimums? Well, the City Planning Commission just reviewed a proposal to do just that.

Wow. And those potential changes are going to the City Council next. Big step. It is. It could really have a ripple effect on development across the whole city. It’s like Dallas is at a crossroads. In a way, yeah. Deciding what kind of city it wants to be. That’s right. Choosing its future. Well, let’s shift gears again.

I’m curious about that whole reverse logistics thing we were talking about earlier. Oh, yeah. Retailers seem to be getting really creative with how they use their stores these days. They are. Online shopping is booming. And that means returns have become a huge challenge. Right. Logistically. And it’s expensive.

Yeah. But some retailers are turning this challenge into an opportunity. Okay. That’s where reverse logistics comes in. So break it down for our listeners. Sure. Let’s say you buy something online. Mm hmm. It doesn’t fit quite right. Right. Instead of packing it up and shipping it back, Ugh, such a hassle. you can just take it back to a physical store.

Oh, that is way easier. Much easier. And it probably saves the retailer money on those return shipping costs. And it gets people back into the store. Exactly. More foot traffic. Which could lead to more sales. You got it. It’s a really smart way to combine online and offline shopping. It is. It’s all about adaptation.

Well, speaking of positive signs, I was reading about how CBRE is predicting a 30 percent growth in investment sales revenue for Q4. Wow, that’s a bold prediction. It is, especially with all the challenges we’ve been talking about. Yeah, what makes them so optimistic? Well, they’re pointing to a few things.

Mm hmm. Certainty after the election, falling interest rates, and a sense that asset values are stabilizing. Okay. Plus, there are just more investment opportunities out there, which is attracting new investors. So maybe not a full recovery yet. Right. But definitely some good signs. Yeah, some encouraging signs.

That seems to be the feeling among the experts. Well, that’s good to hear. Yeah. We’ve covered a lot of ground in this deep dive. We have. From overall market trends to specific sectors, the impact of the bigger economy, and even local decisions here in Dallas. Yeah. It’s a complex picture. Well, it’s been fascinating.

And now as we wrap up this deep dive, I want to leave our listeners with one final thought. We’ve talked about. You know how commercial real estate is shaping things right now, right the present, but what about its impact on the future? The big question. Yeah, how might these trends and see our e influence the way we work?

How we shop even how our cities are planned. Yeah, are we gonna see a major shift? Right in how we use physical space or is this just a temporary adaptation? That is the million dollar question, and it’s tough to say for sure. I think what’s clear is that the line between physical space and digital space is getting blurrier.

That’s true. You know, e commerce is changing retail, remote work is changing offices, and the rise of data centers is changing the landscape of our cities. Yeah, it does feel like we’re in this in between phase, trying to figure out what all this means in the long run. Right, it’s a time of experimentation, you know, adaptation, trying new things.

Yeah. Some trends I think are definitely here to stay. Like what? Like that shift toward experiential retail. Oh yeah. Where stores offer more than just products, it’s an experience. Right. And the demand for flexible office spaces, you know. Mm hmm. Catering to hybrid work. Exactly. People want options. But then you have these other trends that are still kind of up in the air.

Yes. Like what’s going to happen to the traditional shopping mall? The mall, yeah, that’s a tough one. It really is. Nobody knows for sure. It’s like we’re watching our cities evolve in real time. Yeah. It’s fascinating. The choices we make today, developers, city planners, even us as consumers. Yeah. We all play a role.

Those choices will shape the cities of tomorrow. It’s pretty exciting. It is exciting and a little bit scary too. Right. Big responsibility. Yeah. So as we wrap up this deep dive into the world of commercial real estate, what’s the one thing you want to do? I would say this, the future of our cities, the spaces we live and work in, it’s being shaped right now.

Yeah. And we all have a part to play in that. We do. Whether it’s through the choices we make as consumers, the investments we make, or even just by staying informed. Right. Engaging in these conversations. Yeah. I love that. So to our listeners out there. Yeah. Keep exploring these trends, challenge assumptions.

Think critically. And imagine the possibilities. The future is unwritten. Exactly. The future of commercial real estate is still being written, and your insights and actions can be a part of that story. Make your voice heard. Thanks for joining us on this deep dive, and we’ll see you next time for another one.

See you then.