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Dallas-Fort Worth Recession Proof?

Famed Economist, Mark Dotzour thinks hot demand for D-FW commercial property will return after prices reset. Higher interest rates have put the brakes on some commercial real estate deals. Strong investor demand for properties and continued in-migration should bolster the state’s commercial real estate market even if there is a recession, the longtime Texas economist predicts.

“What’s happening in the Dallas-Fort Worth is unprecedented,” said Mark Dotzour. “It’s really a boomtown.”

Dotzour spoke at a Wednesday morning economic forum sponsored be the Dallas-based Strive Commercial Real Estate Advisors. Despite what he described as blunders with government spending and actions be the Federal Reserve, Dotzour predicts continued growth in Texas and a return to commercial property investment in the state.

“It looks like we are going to have a national recession.” he said. “It looks like from the data Texas is choosing not to participate in it.”

The D-FW area had led the county in total commercial property investment for the last three years. And while real estate purchases and funding for new deals have slowed considerably over the last six months, major transactions in D-FW are still taking place.

North Texas cities are among the top in the U.S. in both population gains and job gains.

“I think we are going to see population growth over the next decade here that’s going to exceed every estimate we have seen.” said Dotzour, who previously served as the top economist for the Texas Real Estate Research Center at Texas A&M University.

Recent increases in interest rates and growing worries about a recession this year have put some commercial property transactions on hold. And home sales have already seen a sharp decline in D-FW and nationwide.

“I’m bullish on Texas and I’m bullish on commercial real estate.” Dotzour said. “It appears that buyers are just putting their pencil down for a while. Nobody is saying people are losing interest in commercial real estate.” he said. “They are going to come back in a big way – real estate in going to be a big focus.”

Real estate investment has traditionally been seen as a hedge against inflation and had been favored in cycles when securities markets are in retreat.

Dotzour said the current slowdown in commercial property investment will allow repricing of real estate to reflect the higher borrowing costs. Commercial brokers say that bid rpices on some properies have fallen by between 15% and 20% for previous peaks.

“Prices dropped overnight and the sellers are slow to respond.” he said. “It’s not because there is less demand for real estate – it’s responding to the shock of the cost of money. This is nothing like 1986 and nothing like 2008,” when there where previous major property market shakeouts, Dotzour said.

The D-FW area led the nation with more than $45 million in commercial real estate investment in 2021. And the area again beat out major U.S. markets including New York City and Los Angeles for commercial real estate deals in 2022 with another $40 million in transactions, said Strive Commercial Real Estate Advisors managing partner Jennifer Pierson.

She said after the COVID-19 pandemic hit, “D-FW came out the winner. We expect this trajectory to continue for the Texas cities.”

Article by Steve Brown, Real Estate Editor, Dallas News

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