Fort Worth’s Midyear Commercial Real Estate Report Card

Population growth, employment, business expansion drive apartments

Commercial real estate is one of the cornerstones of FW Inc.'s coverage, and the Real Estate Council of Greater Fort Worth is producing a commercial real estate update that will appear in every edition of the magazine. Members of the council will take turns writing the column.

Fort Worth Multifamily Strong population growth within the region, low unemployment, and expanding business across several key industry sectors continue to drive the expansion of the Fort Worth multifamily market.

Overall vacancy is at 4.2 percent, the lowest percentage the market has seen in recent years. Absorption remains positive, with this expected to continue for the next several years although at decreasing levels.

Rental rates for A and B/C property classes increased throughout the first part of 2015 and will likely continue to do so as the year progresses. The Dallas Business Journal reported that annual effective rents grew 6.8 percent in Fort Worth, surpassing the national average of 5 percent.

Overall cap rates and discount rates were steady in the first part of 2015 with this trend expected to continue for the remainder of the year.

Several mixed-use projects with residential components are under construction, such as the $28 million Pinnacle Bank Place project in Downtown, which will includes 130 multifamily units.

A notable Downtown Fort Worth project recently announced is the development of a 200-unit apartment complex on the site of the former Frank Kent Cadillac dealership.

West Fort Worth is also experiencing an increase in construction with Clearfork, a mixed-use development with 400 multifamily units under construction and future plans for a total of 2,500 units.

South Fort Worth is experiencing growth in the multifamily sector as well, with the 227-unit Highpoint on South Main and The Kelton, a 392-unit development on Edwards Ranch Road.

AllianceTexas continues to add multifamily units, with the nearly complete 318-unit Overlook Ranch project and several additional planned projects. The Fort Worth multifamily market should continue to expand throughout 2015 as demand remains strong, fueling high occupancy and increased rents.

Fort Worth Industrial The Fort Worth industrial property sector continues to strengthen, resulting from a strong local economy with high employment, steady population growth, and expanding business. Rental rates are increasing for both warehouse/distribution space and flex space properties.

This trend should continue through the end of 2015. Overall absorption has been positive since 2010 and demand indicates this will continue even with an estimated 4. 5 million square feet of new industrial space planned over the next six months.

Cap rates declined slightly over the previous year but should see little variation through the remainder of 2015. Discount rates remained fairly steady over the past year, but 2016 will likely see a slight decrease in discount rates.

The North Fort Worth submarket continues to be a hot spot for industrial development, with a 650,000-square-foot distribution facility opening in the Railhead Industrial Park.

Hillwood Properties recently completed several buildings in AllianceTexas in North Fort Worth, including a one million-square-foot warehouse for LG Electronics and a one million-square foot speculative distribution center. One of the largest industrial projects currently underway is a 950,000-square-foot project at NorthPort 35 Business Center in Northlake.

General Motors recently announced plans for a $1.2 billion expansion of its Arlington assembly plant, which could bring 600 jobs. The strengthening local economy, population growth, and increased construction should continue to drive expansion of the Fort Worth industrial market.

Fort Worth Lodging Fort Worth is a desirable location for conventions and tourism, and a center for business and industry in the region, which drives the demand for lodging.

The improving economy and expansion of business to the Fort Worth metro area have helped to drive increased occupancy among full-service and limited-service hotel properties.

Current occupancy and average daily rates are at the highest levels in the last five years. Occupancy is expected to increase slightly in the second half of 2015 and demand should continue to push daily average rates slightly upward.

Cap rates remained relatively flat for the last quarter and are expected to see little variation as this year goes on. Similarly, discount rates saw little movement in the last quarter, and any variation over the remainder of the year is expected to be minimal.

Notable new and planned development in the lodging sector includes a hotel with conference space within Alliance Town Center in North Fort Worth.

Additionally, the Fort Worth City Council approved a new arena in the Cultural District, and future plans call for the addition of thousands of hotel rooms. The West 7th corridor continues to develop.

With the strengthening economy, major local lodging demand generators tend to attract even higher numbers of visitors. The strength of the local economy and business expansion will continue to drive lodging demand.

Fort Worth Office The Fort Worth office market continues to improve and move into the expansion phase of the market cycle.

Strong population growth within the region, low unemployment and expanding business across several key industry sectors have helped drive the market’s expansion.

Vacancy rates did not vary significantly in 2014, although the first part of 2015 has seen an improvement in the vacancy rate in Fort Worth’s Central Business District.

Rental rates in both the Central Business District and suburban areas continue to increase slightly.

Cap rates decreased slightly over 2014 but saw little variation in the first part of this year. Discount rates decreased over the course of 2014 and will also likely decrease through 2015. About 750,000 million square feet in new office space is slated for 2015, a majority within the North Fort Worth submarket.

AllianceTexas continues to add office space.

Jetta Operating Co., an oil and gas company, recently announced plans to construct a 26-story, mixed-use tower in the Central Business District. Plans call for primarily office space with residential on the top two floors.

Recent transactions include the $167 million sale of Carter Burgess Plaza.

The strengthening local economy, population growth and increased construction should continue to drive the expansion of the Fort Worth office market into the second half of 2015.

Fort Worth Retail The Fort Worth retail market is strengthening and has moved from recovery into the expansion stage within the market cycle.

Strong population growth within the region, low unemployment, and expanding business within several key industry sectors have created a favorable climate for retail. Overall vacancy rates have been on a decline for the past several years and are expected to remain relatively unchanged over the coming months.

Overall rental rates continue to improve and will likely continue on this inclination over the next year. Absorption turned positive in the first quarter of 2014 and is expected to remain positive, even with a recent increase in construction activity.

Retail projects are under construction in both downtown Fort Worth and in the suburban areas, with an estimated 695,000 square feet expected to be completed over the next year. Both cap rates and discount rates decreased slightly over the past 12 months and will likely stay relatively flat through the second part of 2015.

North Fort Worth continues to see new retail development with the recently completed second phase of Alliance Town Center, which includes nearly 250,000 square feet of retail space.

Additional projects include North Tarrant Marketplace under construction in North Richland Hills, Park Village in Southlake. In west Fort Worth, Clearfork will include offices, residences and up to 1.2 million square feet of retail space.

Given continued increases in occupancy, new construction, and rental rates, the Fort Worth retail market should continue to expand through 2015.

Jay Redford, senior director for the Fort Worth office of Integra Realty Resources, a full-service consulting and appraisal firm, has been an analyst of all types of real property since 2002. Redford is an adjunct professor for real estate appraisal and real estate investments at the University of Texas at Arlington.