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Texas commercial real estate market heats up ‘like nowhere else in the country’

Construction continues on the Tesla Gigafactory in Austin
A general view of the construction site of the Tesla Gigafactory in Austin, Texas, U.S., October 25, 2021. REUTERS/Brian Snyder

The nation's largest commercial real estate convention resumed in Las Vegas this week for the first time since the start of the pandemic and the red-hot Texas real estate market was on full display.

More than 30,000 people — representing retailers, developers and landlords — attended the last regularly scheduled International Council of Shopping Centers conference in May of 2019. This year's event was scaled down with about 10,000 people registered, and all were required to show proof of vaccination.

“It's great to be back. It’s definitely something to be appreciative of because facetime in person is better than a video or Zoom to make deals,” said Joseph Ash, an investment sales broker with New York City-based Kassin Sabbagh Realty.

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Dan Katz/Texas Public Radio.
Joseph Ash, an investment sales broker with New York City-based Kassin Sabbagh Realty, at the International Council of Shopping Centers Conference on December 6, 2021.

Commercial real estate sales fell during the height of the pandemic, but not as badly as predicted, and they have bounced back considerably.

According to the data firm Real Capital Analytics, the third quarter of 2021 was actually the biggest ever for commercial real estate sales nationally — driven by apartment buildings, life science labs and industrial properties.

Ash recently brokered a $27 million industrial warehouse deal in El Paso.

“There are 10 times the number of logistics properties that are under construction today as there were coming out of the financial crisis,” said Justin Boyar, Director of Market Analytics for the commercial real estate information company CoStar’s Houston office. “We've seen some very, very large portfolio trades, especially international investors, have come to Texas to buy.”

Houston had the highest volume of commercial real estate transactions of any city in the country last quarter. Dallas came in at No. 3.

“Nowhere else in the country is seeing such breakneck retail construction and retail demand as Houston and Dallas. When you have that much single-family rooftop growth and we have a lot of land to build new homes, the retail is going to follow,” he said.

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Dan Katz/Texas Public Radio
Kelley Mattlage, chief communications officer of the East Montgomery County Improvement District, at the International Council of Shopping Centers Conference in Las Vegas on December 6, 2021.

Several local economic development agencies made their way to Las Vegas to court retailers.

“Businesses had time to reflect on what they need to do. Maybe they need to increase production. Maybe they need to move their warehouse or distribution center. Maybe they need to go somewhere where the supply chain is working a little bit better, where people are moving, where people are shopping,” said Kelley Mattlage, chief communications officer of the East Montgomery County Improvement District.

Her county northeast of Houston has experienced massive growth in recent years.

“Our student population has increased about 30% over the last five years. Usually, it's 3 to 5% or so. So it's been incredible to see how many people are moving here.”

Lynn Spencer, Economic Development Director for the City of Forney, said her community 20 miles east of Dallas is looking to make sure residents have stores close to them to buy the things they need.

“We have a big gap considering we're (Forney) the fastest growing city in the third-fastest growing county in Texas. And we have quite a need with a number of houses that are coming into our market and having over 100,000 people in our trade area to not have retail for people to go and shop with all these new homes coming in,” Spencer said.

Dan Katz/Texas Public Radio
Lynne Spencer, Economic Development Director for the City of Forney, poses for a photo with Board Member Fred Alexander at the International Council of Shopping Centers Conference in Las Vegas on December 6, 2021.

Texas' growth has not come without growing pains for cities across the state, including rapid gentrification and residents being priced out of downtown areas.

In Austin, the city has positioned itself as an alternative for technology companies. This past year alone saw the expansion of Apple and the relocation of Tesla and Oracle.

Tech has just been such an incredible driver in Austin but the cost of living has just gone through the roof. Their median single family home prices are above $500,000, which in Texas is a lot. In Houston and Dallas, it’s closer to $300,000,” Boyer said. “So I've heard stories of houses getting a dozen offers and selling for 30% increases year over year and things like that in certain areas.”

Boyar said San Antonio, which relies heavily on tourism, was hit hard at the height of the pandemic but has also been one of the quickest cities to rebound in the tourism sector.

Otherwise, growth has been steady in the Alamo City.

“You have a strong military presence, some banking and financial services, and there’s a big push in the cyber security sector,” he said. “I think we're going to start to see a lot more growth in San Antonio pushing up to the area between San Antonio and Austin.”

Boyar said Texas border communities — home to some of the nation’s busiest trade ports — are also being targeted by investors as the U.S. increases trade with Mexico and COVID restrictions at the border have been lifted.

He added that he believes Texas is starting to take center stage in the commercial real estate world.

“Everyone always talks about New York and California, but I think Texas is going to be the place to be,” said Joseph Ash with Kassin Sabbagh Realty. “The workforce is moving there, companies are moving there. To me, it’s the best state in the country.”

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As TPR's news director, Katz leads the organization’s news and journalism efforts, overseeing the newsroom’s day-to-day management and the development of a strategic vision for the news division. He also serves on the organization’s executive leadership team.