Dallas-Fort Worth is considered one of the best real estate markets in the United States.
The DFW metro was ranked as the third-best property market in the nation based on emerging real estate trends, according to a new report by Dallas-based accounting firm PricewaterhouseCoopers (PwC) and the Urban Land Institute.
According to the report, the popularity of the nation’s top-performing markets was based on metros’ “solid growth prospects,” “business-friendly environment,” “affordable housing,” and “quality of life.”
In general, DFW ranked third behind Phoenix and Atlanta in terms of overall real estate prospects for 2024 and fifth for its homebuilding prospects. Austin (No.1), San Antonio (No.2), Washington, D.C. (No.3), and Atlanta (No.4) all ranked ahead of DFW with respect to emerging homebuilding trends in 2024.
The Sun Belt continues to be the area to watch, according to Charles DiRocco, PwC’s director of real estate research. Texas, which had four of the top 10 emerging homebuilding markets for 2024, “stood out” compared to other states, said DiRocco, per The Dallas Morning News.
“Florida fell out of the top 10 — a little surprise there,” he added.
Overall, DFW remains one of the top regions for development, “which may begin to weigh on fundamentals more acutely in 2024,” the report states. While several metros offer strong growth prospects in 2024, most markets (74 of the 80) have lower prospects.
“There is a new sheriff in town, and it’s interest rates,” DiRocco said, per DMN.
The U.S. Central Bank is currently undertaking its most aggressive tightening cycle in decades. Since March 2022, the Federal Reserve has approved 11 rate increases, bringing the target range for the federal funds rate from near zero during the COVID-19 pandemic to a current range of 5.25-5.5% this November.
As a result, the cost of borrowing money and servicing debt has shot through the roof.
“In commercial real estate, [interest rates make investing] a lot more of a challenge,” DiRocco said. “Commercial real estate debt is the talk of the industry — it’s the talk of the economy.”
For example, Uptown Tower, formerly known as Amberton Tower, was one of several commercial properties that went into default on October 1, as reported by The Dallas Express.
According to property owner Whitestone Uptown Tower LLC, stricter lending standards from banks and skyrocketing interest rates from the Fed were the cause of the $14 million commercial loan default.
The state of the current property cycle points to a “great reset,” according to DiRocco.
Approximately $1.2 trillion in commercial real estate debt will need to be refinanced over the next two years, with $725 billion coming due this year, he said, according to DMN.
All of the real estate debt could get refinanced under higher mortgage rates, ultimately leading to higher borrowing costs and lower commercial investment demand. The United States has too much commercial office space, given current market trends, according to Mary Ludgin, senior research director for Heitman Financial.
“There will be demolitions and conversions,” she said, per DMN. “We don’t need as much as we have.”
