Investors Eye Dallas-Fort Worth as Top Target for Commercial Real Estate Investment in 2023, CBRE Survey Finds

Commercial real estate investors ranked Dallas-Fort Worth as the #1 market for investment among the top 10 U.S. metro, according to CBRE’s 2023 U.S. Investor Intentions Survey.

The survey found that more investors are prioritizing high-performing secondary markets in 2023 (as opposed to gateway markets), particularly those in the Sun Belt with strong job and population growth prospects, which can translate into greater potential for both equity and income growth. Dallas-Fort Worth topped the list of the most preferred markets for investment, as well as the top 10 markets expected to outperform.

Multifamily and industrial are the most sought-after investment sectors in the U.S., with 38% and 28% of investors surveyed indicating these sectors as their most preferred, respectively.

In the multifamily sector, 94% of investors surveyed prefer traditional multifamily and 2% prefer build-for-rent residential communities.

“In prior downcycles, DFW has proven to be more resilient than the U.S. as a whole due to the business-friendly state government, low cost of living, high quality of life and economic diversification of the metroplex,” said Danny Baker, Vice Chairman and leader of CBRE’s Multifamily practice group for the Central region. “More specifically, the apartment sector has proven to be the asset class that fares the best during times of high inflation due to the inherent protection provided by multifamily lease structures and robust demand-side fundamentals that are present in DFW and across the Sunbelt. While there is uncertainty on a macro-level, its apparent that the apartment sector in DFW has strong tailwinds are once again proving resilient, and apartments will continue to be a favored property type for investors.”

In the industrial sector, 66% of investors surveyed prefer modern logistics facilities and 20% prefer second-generation logistics facilities in major markets. These investors are attracted to Dallas’s product for the same reasons CEOs are moving and/or expanding their headquarters to the Metroplex, according to Ryan Thornton, executive vice president with CBRE Capital Markets’ National Partners group.

“Ultimately, investor sentiment is largely based on population growth and DFW gained more people in the past decade than any other major U.S. metropolitan area. This provides companies with a huge talent pool for both white-collar and blue-collar employees,” said Thornton. “Moreover, DFW’s central location and pro-business environment are two significant factors driving capital to invest here long-term. Both coasts are within a three-hour flight, and our highway systems make it easy to get around regionally. Combine these factors with a lack of corporate and personal income taxes, and it’s easy to see why DFW has a thriving, diversified economy that’s attractive to investors.”

Commercial real estate lenders are also bullish on high-growth secondary markets, with Dallas-Fort Worth ranking #8 in CBRE’s 2023 ranking of target markets for new loan origination. Sun Belt markets are favored among lenders with Miami the top preferred market, followed by Raleigh-Durham.

According to Mike Bryant, Vice Chairman and Managing Director of Debt & Structured Finance in Dallas, DFW’s core value proposition for businesses is also sustaining lender activity in the region.

“Property fundamentals in DFW and the rest of the Sun Belt are solid, although moderating,” said Bryant. “Debt providers still have cautious – albeit less than prior years – capital to invest and despite increases in risk spreads, U.S. Treasuries, SOFR benchmark indexes, and higher capital costs there is some demand from borrowers that need to transact. The higher cost of debt capital has led to increased cap rates, although they have not fully adjusted as most borrowers of capital are waiting for improved loan pricing to sell. One bright sign is cap costs for floating rate capital has come down in the last few weeks. Additionally, more rescue capital for weaker deals and operators is beginning to surface. While only a few rescue transactions have closed, more of this capital is expected to be deployed this year.”

Other Key Findings from the 2023 Survey (conducted in December 2022):

• Investors cite rising interest rates, a potential recession and limited credit availability as their greatest challenges this year.
• More than half of investors expect to decrease purchasing activity in 2023 compared with 2022 levels. Amid lower pricing dynamics, 60% of respondents say they will either sell less than last year or not sell at all.
• The most sought-after sectors remain multifamily, particularly apartment complexes, and industrial, led by modern logistics facilities in major markets. Grocery-anchored centers are the most popular subsector for retail investors, while office investors largely prefer Class A assets in prime locations.
• More investors will implement opportunistic and debt strategies than last year because of attractive returns amid higher interest rates and tighter financial market conditions.
• While investors remain committed to environmental, social and governance criteria (ESG), nearly half of respondents say that the worsening economic outlook will limit the extent to which they consider ESG criteria in their investment decisions.