On the northern edge of downtown Dallas, construction crews are busy building the first multitenant office building the area has seen in almost a decade. On the north freeway loop surrounding the Galleria mall, almost a half dozen new shopping centers are in the works. And out near the Dallas-Fort Worth International Airport, industrial builders are scrambling to find enough developed warehouse sites.

After a long climb back from the 1980s crash, Dallas' real estate market is humming again with new projects, rising rents and escalating building values.

"If you consider the challenges that our industry has faced here over the last few years, certainly we have every reason to be encouraged," says Prior Blackwell, the partner who heads Trammell Crow Co.'s Dallas office. All 61 the product lines are doing well - each enjoying continued growth and recovery.

During 1995, the Dallas-Fort Worth area has enjoyed one of the country's fastest growing job markets. Economists estimate that employment gains in the area are down only slightly from the almost 80,000 new jobs added in 1994.

"Our economy is still growing at a rapid rate," says Ron Witten, president of M/PF Research Inc., a Dallas-based real estate and economic analyst. "We've seen some slowdown because of the higher interest rates this year and the weaker national economy. But I think the worst of that is behind us."

Dallas last year had more corporate relocations and expansions than any other U.S. metropolitan area, according to an annual survey by Site Selection. More than 160 corporate moves or expansions in the area were recorded in 1994.

This economic growth has given the Dallas area one of the country's fastest growing commercial and residential real estate markets. Office, retail and industrial space absorption is at a 10-year high, according to the latest surveys. And income property values are in some cases 25% to 30% higher than just a year ago.

Randy Moses, senior vice president at Southwest Properties Group Inc., also sees things improving in Dallas. "We're beginning to see a resurgence of activity. I think there will be continued growth in the uptown area."

"People are even looking at land investment deals again," says Dallas real estate broker Roger Staubach. "Who would have thought that just a few years ago?"

"The CBD market has definitely improved in 1995," says Rich Uzelac, director of marketing for Transwestern Property Co., Dallas. "The suburban market has tightened especially when it comes to large blocks of space, CBD development projects are coming to fruition. Because of this, downtown landlords have become the beneficiary of increased activity."

Jack Eimer, executive vice president and partner for Transwestern's Dallas region, says he sees a trend developing as a number of large-space users are starting to look at downtown again, because it is more cost effective. "It's ironic because, let's face it, suburbs were created by large users who left downtown because it was too expensive."

While the property market surge already has some analysts worried about the potential for another round of overbuilding - particularly in the apartment and retail markets - long-time market watchers aren't troubled by the pace of building.

"I don't see the kind of building boom that we saw in the 1980s," says Jeanette Rice, senior economist with mortgage banker Holliday, Fenoglio, Dockerty and Gibson Inc. "I don't see the ingredients that allowed that to happen. The psychology is not there. And there is still a tremendous amount of discipline in the industry.

"That's not to say that we may not have niches of over-building," Rice says. "But the mass overbuilding of the 1980s - I just don't see that happening."

Investment market

When runaway building in the early 1980s turned to bust, buyers for Dallas commercial properties were as hard to find as loan extensions. For years, prime properties went begging as investors shunned the Oil Patch for "safer" markets in California and the Midwest.

"Now there are millions of buyers," says CB Commercial Group executive vice president and Dallas manager, Jeff De-weese. "The problem is finding them properties now. All the best deals have been picked over."

So-called "contrarian" investors have long since snapped up all the best buys out of Federal Deposit Insurance Corp. and Resolution Trust Corp. coffers. Many of these early investors are now turning seller for big profits.

Most of the income properties coming to market in Dallas this year are from life insurance and pension fund portfolios, assets taken through foreclosure a few years ago and now put up for sale.

"There are no longer an mega-deals," says Deweese. "But there are still a lot of good buys. Dallas is on everybody's radar screen as a market they want to be in. There is a lot of money chasing deals."

Sales of commercial buildings in the Dallas area were up by as much as 20% during the first six months of 1995, according to a study by Dresco Inc., a Dallas-based statistical firm. The biggest gains this year have been in industrial and apartment acquisitions, says Dresco president George Roddy. "People are shifting around in real estate investments," Roddy says. "We've seen some retreat from office buildings to some degree and a shift into industrial."

Despite predictions that there would be a slowdown in commercial sales in the area this year, properties have continued to come to market.

"Every couple of months there is another building available," says Patriot American Group's jim Mertz. "I think there will be a continuation of sales. Some of the vultures that bought two and a half years ago are now looking at selling."

Competition has pushed the prices of prime suburban office buildings to near $100 per sq. ft. That's more than twice what similar properties were selling for just three years ago.

With the higher prices, annual yields for commercial properties like office buildings, shopping centers and warehouses have fallen to just over 10%, investment brokers say.

"I had a guy in here this morning saying he wanted an investment with about a 20% return - well, he's two years too late", Deweese says.

Even if Dallas' fire sales are now just a few wisps of smoke, institutional investors are still attracted to the market.

"Real estate, not withstanding the run, up in values, is still well less than replacement cost," says Gregory Kraus, acquisition director for L&B Group. "Today's buyers may only need a 6% to 8% return after inflation. If they can buy good real estate still below replacement cost in a market where rents are rising, it's a good buy."

One of the biggest buyers in the Dallas area during the last two years has been Crescent Real Estate Equities. The Fort Worth-based real estate investment trust's purchases this year include the Aberdeen, a 321,000 sq. ft. office building on the Dallas North Tollway, a $16.2 million acquisition of the 266,000 sq. ft. Stanford Corporate Centre near the Galleria, and an almost $16 million acquisition of the 240,000 sq. ft. S&A Restaurant headquarters building in North Dallas.

"We are exceeding our expectations in virtually every property," says Crescent chief executive John Goff. "We are getting better and better rental rates and the concessions are clearly coming down."

Dallas investor Donald Carter, who during the last four years has purchased more than a dozen Dallas-area office buildings, paid almost $20 million to buy the 20-story, 635,000 sq. ft. Stemmons Place office complex near Dallas' Love Field airport.

Carter-Crowley Properties almost a dozen bidders who made offers to buy the building from a subsidiary of Bramalea Ltd. The building was about 65% leased at sale.

Carter-Crowley executive vice president Jed Thompson says the company still hopes to add to its more than 3 million sq. ft. office portfolio. "We are looking at everything that comes through," Thompson says.Opportunities are fewer, and the prices are higher. You have to think about everything more carefully."

A mid-year survey by Miller Commercial Group found that unlike a few years ago, almost 60% of the purchases this year in the Dallas area have been made by local buyers. Only about 25% of the acquisitions were made by out-of-state investors.

Less than 3% of the sales this year have been by government agencies like the RTC and FDIC.

Office market

When developer Harwood Pacific Corp. first unveiled plans for its International Center office building near downtown Dallas, there were understandably a lot of skeptics.

After all, no developer had started a multitenant office tower in the Dallas market since 1986. And the area still has considerable vacancy in Class-B and -C office space.

But now that construction has started on the 10-story, 220,000 sq. ft. office tower, Harwood Pacific has made believers out of the rest of the market. Other developers are already buying sites and making plans for the next generation of Dallas office construction.

"We are running out of space," says jerry Fults, president of Dallas-based Fults and Associates. The newer buildings are all full, and in the suburbs the rents are rising almost daily."

"The market has turned, and it is clearly a landlords' market," says Crescent Real Estate Equities' John Goff. "In some area's there are real space shortages."

Cushman & Wakefield of Texas Inc. estimates that during the first half of 1995, office absorption in the Dallas area topped more than 1.5 million sq. ft. That comes on the heels of almost 3.5 million sq. ft. of absorption in 1994.

Cushman & Wakefield's Dallas office manager Reagan Dixon says major tenants are scrambling for the last large blocks. "One of the greatest services we can give our clients right now is to make sure that they don't get left out in the cold with no space," Dixon says. "We have to instill a sense of urgency."

Tenants who were in the leasing market five years ago are understandably shocked at prices. Prime suburban office buildings that rented for $ 1 0 a few years are now quoting between $16 and $20 per sq. ft.

"In the Urban Center, we are quoting $21 per sq. ft. rents," says Dary Stone, president of Faison-Stone Inc., which operates the Las Colinas development in suburban Dallas. Stone estimates that office vacancy rates in Las Colinas' highrise Urban Center are less than 5% with "tenants lined up for s ace."

"Rates have moved UP by $5 per sq. ft. in the last 12 months," Stone says.

Overall office rents in the Dallas area averaged $14.37 per sq. ft. annually at mid-year, according to M/PF Research Inc. That's up about 5% from the end o 1994.

With rents approaching $20 per sq. ft., a handful of developers are already looking at new projects.

MEPC American Properties Inc. recently began "updating" its plans for a final tower in its three-building Colonnade office complex on the Dallas North Tollway near Prestonwood Town Center shopping mall. The developer finished the last 14-story building in the project in 1985.

"In the not too distant future someone will need a large block of space out here," says MEPC president David Gruber. "It makes sense for us to have the plans ready for our building."

In the "telecommunications corridor" along State Highway 75 in the suburbs of Richardson and Plano, expansion by high-tech firms has already consumed most of the empty office space.

Developer Dal-Mac Cos. and investor Granite Properties Inc. recently teamed up to buy more than 20 acres of office and industrial land with an eye toward construction "Based on the tremendous business growth in the Telecom Corridor and the high-tech industry in general, the partnership is very excited about the prospects for near-term development of the land," says Dal-Mac president Brad McJunkin.

Even owners of existing suburban buildings are upgrading their properties in hopes of increasing profits.

Chicago-based Equity Office Properties recently began a $1.1 million renovation of the 13-year-old Glen Lakes Tower on North Central Expressway in North Dallas. The investor bought the 16-story high-rise in 1994.

"We are confident more than ever in this market," says Thomas Bakke, Equity Office Properties' senior vice president. "We like Dallas a lot. It's one of the better markets in the country."

A study by Grubb & Ellis Co.'s Dallas office found that while suburban office space in is short supply, downtown has more than 14 Class-A building spaces that can accommodate tenants of 100,000 sq. ft. in size or larger.

With office space downtown renting below rates in the suburbs, landlords say they are hoping to lure more tenants downtown.

"We've added, in the first six months of 1995, another 25 new tenants down-town," says Mario Zandstra with Transwestern Property Co. "Suburban tenants flat don't have a lot of options. Downer sq. ft. spread in some buildings down in, north St. Louis city. In late '95 or early '96 the company will start 31,000 sq. ft. of retail at Richmond Center in Richmond Heights where a Schnuck market was opened recently. A 110,000 sq. ft. center will be started by Desco this fall in the new community of Wildwood in west St. Louis County. Also this fall in St. Charles County Desco will begin construction of an 87,000 sq. ft. center with two out-lots.

Joe Ciapciak, director of leasing at Pace Properties, says most new development is of the big box variety with consolidations continuing to be an important factor. Retail rentals have leveled off with only modest increases expected in the future. "Increases won't be nearly as large as they were in the last year or so."

According to the Midland Group's shopping center report, St. Louis Country rentals are $11.70 per sq. ft. in south Country, $11.50 per sq. ft. in west County $9.31 per sq. ft. in north County and $9.75 per sq. ft. in the city of St. Louis Midland has proposed a 14-acre center on Manchester Road in West County that would include a 7,500 sq. ft. building, a 24,600 sq. ft. strip center and a 52,425 sq. ft. building.

"Ground prices in St. Louis have increased dramatically in the last 18 months," says Sherwood. "They have really soared." High demand put more pressure on the market once the recession was over. "Before last summer there was very little land business, but since then, it has picked up tremendously."

Apartments

John Hoenig, CB Commercial apartment specialist, says the rental market continues to be strong with occupancies of over 95% in just about all well-managed, quality properties. As expected, rentals are on the upswing as well, Hoenig says. in west St. Louis County, generally acknowledged as the best multifamily market in the area, landlords are getting 5% increases per year, with St. Charles at nearly that figure. North and South county markets are rising 3% annually.

Patricia B. Borg, director of residential properties at Nooney Krombach, says occupancies at multifamily properties Nooney manages are running between 96% and 97%. "Because of the high occupancy we've been able to attain rental increases averaging about 4% to 5% this summer.

Hoenig says despite talk about new multifamilycomplexes, he believes that significant new apartment construction is at least a couple of years away except for low or moderate-income projects.

While apartments remain the preferred property for investment, the current lack of product for sale is calling tile bloom to fade as some investors shift focus to offices which are more readily available and perceived to offer more on the upside, Hoenig says.

Hoenig reports that capitalization rates on St. Louis apartment sales range from 9% to11%. "Cap rates near 9% were reserved for the highest quality, well located, newest properties. On the whole cap rates remained in the 10% to 11% range with investors being more selective and showing more concern for the quality of the product."