The market for North Texas office buildings appears to be drying up amid soaring financing costs, weak demand, and falling prices.
North Texas is a hot market for real estate investment, but the number of commercial properties currently on the market in Dallas-Fort Worth not attracting a buyer is on the rise, The Dallas Morning News reported.
“We haven’t seen a market like this one before,” said Walter Bialas, senior insight analyst with Avison Young, per DMN. “That’s what is giving people pause.”
DFW has almost two dozen office developments currently listed for sale, including The Collins Crossing office tower on U.S. Highway 75 in Richardson and the Galleria North II tower located next to Galleria Mall, among others.
Deals for office buildings aren’t flowing like they used to, according to MSCI Chief Economist Jim Costello.
“Deal volume in Dallas is down for the office sector, as are prices,” said Costello, the DMN reported. “What it will take for deal volume to return is for current owners to accept that potential buyers out there have a dim view of the risks of owning offices.”
The office building sector was initially impacted following the pandemic lockdowns and has struggled to attract businesses and workers back to the office since. Furthermore, commercial asset values have fallen due to the Federal Reserve embarking on its most aggressive tightening cycle in decades, as covered by The Dallas Express.
“It wasn’t that long ago that buyers were borrowing in the sub 4% and low 4% range,” said Susan Gwin Burks, senior vice president with Avison Young. “Now we are in the 8.5% range. That changes the value of an asset considerably.”
Meanwhile, banks are taking on less risk while shoring up liquidity from the sideline, leading many would-be buyers to rely on seller financing, according to commercial property investor and developer Craig Hall.
“It’s not going to change until the debt markets change,” said Burks. “We need some confidence in the market. We need the Fed to stop raising interest rates.”
