For Now, Texas Real Estate Won't Let The Numbers Kill Their Party

Some Texans groaned and some Texans cheered.

When Gov. Greg Abbott announced his plans to fully reopen the state on March 10, the state's commercial real estate sector probably all yelped a mighty "yee-haw."

And nearly a month later, that unbridled enthusiasm is still bubbling — even if the early data does not quite live up to the rose-tinted atmosphere still swirling around hard-charged real estate circles.

"The impact that I have seen from the reopening is probably the greatest impact event from my 17 years in the business," Marcus & Millichap Senior Managing Director of Investment for the Multi Housing Division Al Silva said when discussing multifamily's reaction to the reopening in Texas. 

Silva speculated that with more retail and restaurant workers — many of whom live in apartments on hourly wages — back at work full time in March, Class-B and C multifamily assets saw delinquencies fall and overall confidence return to the space. 

Silva admitted it will take some time for official numbers to come out to prove just how much apartment demand and confidence rose in the wake of Abbott's reopening in Texas.

But, he said, delinquency peaked last fall and "after the reopening of the economy, restaurants, bars and everything else, these people went back to work and continued to pay rent, restoring a lot of confidence in the multifamily sector."

Silva said when talking to apartment owners, operators and management companies, the mood is one in which Texas landlords believe people are able and willing to pay rent, signaling a return to normalcy sometime this year. 

A sense of optimism is also sweeping through DFW's office sector even though space absorption in the first quarter came in at negative 2M SF, with a total office vacancy rate of 21.4% in Q1, according to a new report from Cushman & Wakefield. 

In the same report, Cushman Executive Managing Director and Office Tenant Rep Leader Robbie Baty assured the market that anticipation of a full recovery is building and the Q1 vacancy rate is just a lagging indicator from a slower 2020 caused by the coronavirus pandemic. 

Baty expects it will take a few more months for vacancy numbers to level out, but he added that "the numbers don't tell the story of the positive outlook we have on the DFW market in the latter part of this year."

In the same Cushman report, Executive Managing Director Matt Schendle noted an uptick in office inquiries, tours and proposals across several DFW office submarkets. He also noted the presence of overwhelming pent-up demand in the market, which Cushman believes will propel office activity forward in the second half of the year. 

Todd Hubbard, the newly appointed managing partner at NAI Robert Lynn and longtime president of its Fort Worth office, agrees office is on the rebound and expected to come back in the second half of 2021. 

Since the reopening, Hubbard said, many office tenants who were once indecisive about whether they would return to the office or adopt a hybrid office model are gaining confidence in the vaccines and in their eventual return to a traditional office space. 

"I think the biggest thing is now the decision-makers understand and feel comfortable with what I would call the playing field, and so they are now able to make decisions," Hubbard said.

"There were a lot of companies that kicked the can down the road and tried to go short-term until they could figure it out; and now as we are seeing an uptick in activity, they are more willing and confident to commit to renewing their spaces for a typical renewal period."

Hubbard said the positive impact of tenants shopping for office space in March after the economy fully reopened will not be quantifiable until later this year. 

"I would expect you will start to see the numbers impacted from an absorption standpoint probably in the third and fourth quarters," he added. "Now, it's everyone kind of just getting back to making the decisions, so they are getting back out there and looking at space."

Perhaps the greatest uptick in optimism after the Texas reopening occurred in the retail and restaurant space. 

Weitzman CEO Marshall Mills said Monday that sales reported by restaurants in his firm's portfolio of properties came in 10% to 15% above last year's levels in Q1 as vaccinations and the governor's reopening plan gave people more confidence to dine out. 

Retail foot traffic also is up, Mills told Bisnow. He said newer retailers with innovative concepts are beginning to use this time of optimism to find empty spaces inside prime shopping centers that were vacated by failed retailers in 2020. 

When comparing the first quarter of 2021 to 2020, the number of retail deals closed by Weitzman's brokerage company is up a whopping 36%, Mills said. 

"This all really started in the fourth quarter of 2020, because we are a pro-business state," Mills said. "Things were already starting to heat up and they have just continued."

Retail rental rates also are holding firm, despite some vacancies in 2020, due to a constricted supply of new construction, Mills said. 

Weitzman brokers also are seeing signs of confidence early on in 2021 due to a strong number of retail and restaurant concepts calling to do business in Texas. 

"There has been a number of new tenants that are moving to this market, so I think we are very bullish for the remainder of the year for traffic not only on the shopper [side] but also [when looking at] leasing in the marketplace," Mills said. 

CORRECTION: April 6, 9:10 A.M. CT: A previous version of this story attributed one of Marshall Mill's quotes to Weitzman. The story has been updated.