Dallas Real Estate Booms As Commercial Real Estate Sentiment Declines

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By Alan Gold

The Dallas property market is on the rise, reaching the top real estate investment list for 2016. The Texas city ranks as the 12th-hottest real estate marketing in the world behind the likes of Tokyo, New York and Paris.

The report, from JLL, finds that Dallas is considered a “New World City.” Boston and Seattle rank among these new world cities, too. These cities are mid-sized with high value and high-tech sectors that also offer a robust infrastructure. Quality of life and transparent business practices are also present in these cities.

The requirements allow for these new cities to experience a boom in real estate market activity.

North Texas enjoyed several record property purchases, with commercial property sales reaching $10 billion last year. The city’s market grew over 33% since 2015. J.C. Penny’s Plano headquarters and Verizon’s new complex in Irving were among the high profile real estate transactions in North Texas.

The city has ample room for growth in long-term value and rental rates. JLL states that global investments will total $700 billion in 2017 in the retail sector. Robust offering reports point to Dallas’s market to continue growing in 2017, as further reports show that institutions are losing faith in the commercial sector.

It has been reported that big institutions are selling off commercial real estate for fear of rising interest rates and market weakening. A surge of new real estate supply is also influencing markets. Deal volume for commercial sales fell $58.3 billion in 2016, marking the first annual decrease in commercial real estate sales since 2009.

Investors view the market slowdown as the first sign that investor appetite is waning.

Niche properties are becoming a hot investment option for many large buyers, with self-storage warehouses and biomedical facilities among the most profitable niche real estate options. Rental apartments and office buildings are also in high demand.

Investors are taking a “risk-off” mentality and selling off more properties than they purchase. Asset exposure reduction is leading the way for many companies, as major real estate investment firms are turning to higher-return investments.

The U.S. commercial real estate sector is an $11 trillion sector that is driven by high prices. Rising interest rates allow bonds to become attractive again and outpace the rate of commercial property in some cities.

Returns for commercial real estate properties fell to 9.2% in the year ending September 30, 2016. The decline is a sharp contrast to the same period a year prior when returns were 13.5%.

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