Dallas’s real estate market has a lot going for it: A great workforce and affordable housing, to name a couple.

Dallas-Fort Worth ranks No. 5 on a “U.S. Markets to Watch: Overall Real Estate Prospects,” a list within the 2018 “Emerging Trends in Real Estate” Report from PwC and the Urban Land Institute.

Dallas dropped from No. 2 in last year’s list and No. 1 in 2016. Austin ranked No. 2 in the 2018 listing, dropping from No. 1 last year. The top five positions included Seattle (No. 1), Salt Lake City (No. 3) and Raleigh/Durham (No. 4). The only other Texas cities making the “U.S. Markets to Watch” list were San Antonio (No. 18) and Houston (No. 60).

“We are seeing increased interest in secondary markets especially those that are investing in the livability of their communities.”
R. Byron Carlock

R. Byron Carlock, who leads PwC’s U.S. Real Estate Practice, talked Wednesday to a sold-out audience at the North Texas Urban Land Institute’s “Emerging Trends” event at the Belo Mansion. His talk was based on the joint report, an annual forecast now in its 39th year.

“We are seeing increased interest in secondary markets especially those that are investing in the livability of their communities,” he said. “Millennials are geared to go where the lifestyle is.”

Besides Austin, mid-tier metros such as Nashville and Salt Lake City are attracting real estate interest as big gateway markets become overly competitive, he said.

The report reflects the views of more than 1,600 individuals who completed surveys including property owners, developers, real estate advisory firms, homebuilders, lenders, investment managers, and others in various real estate businesses.

Carlock said market sentiment for the 2018 report dipped slightly over last year, but only 1.1 percent of respondents think 2018 will be a poor year.

RETAIL’S INFLECTION POINTS

Retail is continuing to undergo a major transformation with the redevelopment of old malls into mixed-use projects and the rise of e-commerce affecting in-store sales.

Although foot traffic is on the decline at most retail centers, e-commerce isn’t solely to blame. Survey respondents said five key trends are converging to reshape the retail sector:

1. Department store deconstruction and obsolescence
2. Overall retail industry maturity
3. Fundamental changes in apparel manufacturing
4. Changing consumer demographics and preferences
5. Advances in retail technology, including e-commerce

For retailers wanting in-store sales, they’ll need to respond with whatever it takes to make the in-store experience a happy one, Carlock said. That could mean having a simple return policy and well-informed employees who can offer shoppers assistance.

“It requires great investment by the retailers who are going to make it,” he said.

Still, despite the stresses in the retail industry, survey respondents noted the availability of abundant capital for retail owners and investors.

TECHNOLOGICAL TIPPING POINT FOR HOMEBUILDERS?

For homebuilding prospects, DFW ranks seventh, the highest ranking for a Texas city, above Austin (27), San Antonio (51), and Houston (57).

Homebuilders are facing rising costs for land, labor, and building supplies. Even though the national market is considered undersupplied, that hasn’t always translated into more homebuilding due to a variety of challenges including development restrictions, land costs, and lack of land.

These high costs may force homebuilders and developers to leverage technology to reduce costs, improve processes, and become more efficient. That could include use of off-site construction, robotics, 3D printing, and implementing new workflow systems, but some survey respondents expressed concern that technology is only making a difference at the margins.

Affordability is expected to rank among the most important challenge facing the industry.

CARLOCK: TAX REFORM GOOD NEWS FOR REAL ESTATE

Real estate fared well in the recent tax reform bill, Carlock said. More than 1,000 exchanges, pass-throughs, and carried interest were all preserved in the new law. Although the mortgage interest deduction was limited for higher-cost homes, that shouldn’t affect the bulk of homes in DFW, where the median home is valued at about $260,000, he said.

Get on the list.

Sign up to keep your eye on what’s new and next in Dallas-Fort Worth, every day.