Big D has seen its fair share of boom and bust over the past 10 years, but as the 1990s come to a screeching close, the area's office, industrial and retail markets are still exploding. Building cranes are back. So is capital. But so, too, are job growth and tenant demand.

We visited with some of the Metroplex's top real estate minds recently at the Mansion on Turtle Creek in Dallas to bring us up to date on the status of the local markets.

NREI: ONCOR has ranked Dallas the No. 1 city in new office starts. Will there be enough tenants next year to fill all the new buildings going up?

Mark Small: All the buildings that are going to start haven't started for this particular market. There haven't been any significant new starts in this market in probably eight months to a year, with my Churchill building being the last major new start at 300,000 sq. ft. and that was the middle of January of this year.

We have about 11 million sq. ft. of space being delivered this year and we're going to absorb about 5.5 to 6 million sq. ft. of space. We probably will have another 3 million to 4 million sq. ft. delivered next year. The important thing is the Dallas economy is very strong. It is outpacing the Texas economy and the Texas economy is outpacing the national economy. So a lot of businesses are adding new employees, they are expanding, they're relocating from their existing spaces, they're looking for more efficient space and new space with new features. So we're seeing a tremendous amount of absorption in the new developments because of those factors.

When you look at the Parkway where most of the significant development has occurred, that's also where most of the significant absorption is occurring. We have a 400,000 sq. ft. building coming on line at the end of this year on the Parkway, and we are 50% leased right now. We hired Transwestern to do our leasing and we're working about 1 million to 2 million sq. ft. of prospects for the buildings. I'm starting to look at developing a second office tower on that site along with other facilities. I think the Parkway is going to absorb fairly quickly.

If you look at the market as a whole, we have about 5 million sq. ft. of projected new inventory at the end of 2000, which equates to about a 1-year supply. Given that there haven't been any significant new starts, that should be adequate to keep us supplied with new space until more new space can be delivered in 2002 because it takes about two years to deliver new space. And we have somewhere north of 20 million sq. ft. of renewals that we're in the midst of right now. It's a very active marketplace.

Elizabeth Trocchio: Mark, are you doing any build-to-suits or are they all multi-tenant?

Small: All of mine are multi-tenant. We've been approached by several companies to do build-to-suit, and I usually try to steer them into one of my buildings.

Charles Anderson: As always in Dallas, we got a little bit ahead of ourselves with the development. The good news is the capital, primarily the construction lenders, have pulled their horns back in and allowed the market to catch up with itself. The big driver here is job growth, and to the extent the Dallas economy is strong, I absolutely agree with Mark. I'd say we're on the sidelines from a spec standpoint from anywhere from 18 to 30 months given where the economy is and job growth goes.

For the most part we've seen great absorption. We had a marketing meeting the other day and we see about 7 million sq. ft. of prospects in the greater Dallas marketplace today and the bulk of that is people who are growing, so a good portion of that 7 million sq. ft. will be net absorption. We see anywhere from 4.5 to 5.5 million sq. ft. being absorbed this year. I think a lot of stuff will happen in the fourth quarter this year with people trying to get things done before they hit the 2000 mark. Again, once we get through the first90 days of 2000 I expect it to pick right back up and continue to go.

Steve Modory: The only caveat I would add there is if you look at the past two years, I think we've averaged 4 million sq. ft., plus or minus, of net absorption. But if you look at how that breaks out between larger deals that went into facilities as a single-tenant situation, versus more traditional mid-rise to high-rise space, something like 75% of the absorption has been single-tenant deals. Not necessarily build-to-suit, but spec buildings that were maybe two to four stories in height that went to single-tenant situations.

So the only caveat I think is there is a lot of construction right now that is more traditional in nature, center-core buildings, that are going to be making a lot of 5,000, 10,000 and 15,000 sq. ft. deals, and that is a pretty long road to lease up that much space.

We aren't seeing the 100,000 sq. ft.-plus tenant; it's very rare. Typically those size tenants are opting for the larger campus facilities and not jumping into the high-rise developments at this time. But if you look at the product that is available right now, most of it is high-rise, so someone like that has a lot of choices today and they could probably cut a pretty good rent deal at this point.

Jerry Fults: The numbers are what they are. With everything that's been said here, I don't anticipate any big problems going forward. There will be a lot more spec built, but we do have tremendous demand. The rental rate increases have topped out because of more space being on the market. It's about as natural a flow of the market as you could possibly call for.

NREI: Where have rents topped? At $23, $24?

Fults: Probably. $22 to $24 is the range, and you do hear some getting above that and some products getting below that. That's typically plus E [electric] plus parking. Downtown is a bit below what you'll find up north. There's a lot of blue sky here.

Phil Baker: One thing that needs to be stated is that there is a lot of new construction activity but it seems to be localized in the Far North Dallas market and in Las Colinas. Those two markets have about 85% of the new development. Historically those are the two markets that absorb the space the fastest.

As you look at the Far North Dallas market, [Highway] 121 used to be Oklahoma. Now that's close in and the development is anticipated to move up the Tollway. Likewise, if you look at Las Colinas and the most recent success that Champion has had with an 800,000 sq. ft. deal for Microsoft, [development] continues to move not only toward the airport but now it's jumped to the airport. We perceive the next corridor of growth is going to be the [Highway] 114 corridor out towards Circle-T ranch where Fidelity has taken 312 acres. Sabre just closed on 156 acres to build 2.5 million sq. ft. So that corridor has arrived.

But, the development that's taking place is not a group of development guys who just found money available and put up buildings. They're putting them up where clients want to be and it's obviously proven successful.

NREI: But there is plenty of activity in other markets, like downtown. Mr. Anderson, aren't you building near downtown?

Anderson: We're building in the uptown area just north of downtown. I would say the CBD is going to pick up dramatically and Jerry will probably concur with this. What you found in the buildings like the Chase Tower, Trammell Crow Center, the Crescent, Fountain Place, is that downtown is a two-tier market, really. If you look at the top tier of downtown buildings, they get the highest rents in Dallas, period. Take any suburb you want, they have the highest rents.

We just built a new building at 2100 McKinney across the street from the Crescent and we're about 70% preleased right now. We're getting great rates there. I really see downtown with an opportunity to bounce back. There is mass transit, the Central Expressway is being completed which will allow people to get into and out of downtown and there are some really large blocks of space down there that you really can't find anywhere else in the Metroplex. Bryan Tower has about 800,000 sq. ft. contiguous that they can put together, and I think you'll see some good action on buildings like that. Omnicom just scrapped their plans in Plano to move back downtown, which is another real positive sign for downtown.

We sit around this table every year and talk about how downtown is going to come back, but I really believe it is. It isn't going to come screaming back, but it's going to be a slow, deliberate kind of pace. You'll see growth from the downtown tenants. It's got a 23 million to 24 million sq. ft. base of tenants that are already there. Put any kind of growth factor on those tenants and you've got anywhere from half a million to 1.5 million sq. ft. a year of internal growth from a lot of these service firms.

Gary Dickenson: Chuck is talking about 7 million sq. ft. of prospects being in the marketplace and our research proves that, too. But what happens in markets like Las Colinas is something falls out of the sky that's not on the radar screen. We've already seen NEC come in as a corporate relocation and lease half a million sq. ft. Chase Bank is in the marketplace in North Dallas looking for half a million to a million sq. ft.

We're going to attract those [relocation] businesses to Dallas and we think to Las Colinas. There is a stage of new tenants moving out of older buildings and into the newer projects, like Microsoft. But we're already seeing a backfill into those older spaces. At The Towers of Williams Square, we're getting back a 200,000 sq. ft. block of space late this year and we've already preleased half of it. I think Las Colinas is really going to surprise people. We're a little bit stabilized on rates and I'm a little bit afraid of what's on the horizon, but what I'm seeing is probably more aggressive growth than what we've even forecasted.

Tommy Van Zandt: What's really changed over the last 10 years is that the workforce is out there. The airport was the attractor. Now you don't have to depend on the airport because you have people out there. The Metroplex is not Fort Worth over here and Dallas over here. It's now one big megalopolis so-to-speak and a lot of people have chosen those suburban areas around the North, East and West sides of the Airport. That's what's driving this, the job growth. The reason we have the job growth is we have the infiltration of new people who are seemingly locating around the airport, which bodes well for those suburban markets.

Small: We have a couple of wild cards in this market. The big wild card is relocations. Last year we had about 119 companies relocate to Dallas and that represented 29% of our absorption. Rates on the East and West coasts are going through the ceiling. Suddenly $24 sounds like a real bargain. A lot more corporations are going to be looking at the Central United States.

NREI: Is there any thought to spec towers in Las Colinas?

Dickenson: I would say at this point, no. There are probably a couple of spec possibilities in the Urban Center that are poised to start but require some substantial preleasing before they can do it. There is enough vacancy coming back to curtail those plans for the next year to 18 months. I think we will see some other build-to-suit activity in the other areas of Las Colinas, but I can't imagine another spec project in the next 12 months or so.

Baker: I don't mean to repudiate that, but there is somebody who is contemplating that right now, in the Las Colinas market area, with about 180,000 sq. ft. starting in the first quarter [of 2000]. When you look at the big deals and there is adjacent land on which the developer can build expansion space for these tenants, there's a risk associated with it, but there could be some reward there. No one can match the success Champion enjoyed putting up the first spec building in Las Colinas. It's a textbook case of somebody being in the right place at the right time.

Fults: Las Colinas is going to really come into its own.

Van Zandt: It's also getting the retail infrastructure. It's been retail-challenged for a number of years and that's finally starting to change.NREI: Spea king of retail, Mickey, give us an overview of the Metroplex retail markets.

Mickey Ashmore: As I listen to you all talk about the office market, everything that you're talking about really applies to the retail market as well. It's the job growth, housing starts, the airport, our central time zone. If you look at where the [Highway] 114 corridor is with the next wave of office, it certainly is the next wave for retail as well. There is enormous absorption as the construction continues.

Retailers continue coming to this market because the results continue to be very good. We've seen Kohl's come into the market with their stores and we've seen Costco announce with three or four stores ready to start to challenge Sam's [Club] in the wholesale club business. New Super Targets are going to force some traditional Targets to go dark. But we do a lot of surplus property work and we've handled over 60 Wal-Marts in the last three years in Texas as dispositions. We're seeing a lot of office tenants come into our old Wal-Mart buildings.

The growth of retail is in the suburbs, but there is a huge urban infill as well. We think downtown has a chance now. With the lofts and residential happening, we're starting to get some retail interest there. If you just go north, north and norther, that's solid. Tarrant County has unbelievable growth. Population growth fuels the need for supermarkets. HEB is rumored to be coming into the market and when you have such a competitive situation, it's really rough for us because everybody is vying for sites. But you must have preleasing or you're not going to get it built. If there's any danger, it's that you're going to have too much space built attached to these grocery stores.

Trocchio: It's interesting. I agree with everything Mickey said. We've been watching [Highway] 114 for the past 18 months and its retail is still booming.

What drives our development is the tenants. They will come to us and ask what markets we are developing in and that's where they want to be. It's really not a matter of preleasing, it's a matter of putting the right tenant mix together before we actually break ground. We talked briefly about capital, but there is an abundance of it, because the tenants are driving it. We're not having a hard time finding funds at all.

Ashmore: There's no shortage of ability to arrange financing, especially if you have tenants. You can get the deals done.

NREI: There's a lot of overlap between what is happening in the retail market and how industrial properties are shaping up. Holt can you take us through the local industrial market?

Holt Lunsford: Industrial has been very strong. We track deal flow and in the second quarter our office alone did about 30 deals. So far in the third quarter we've done 51 deals, so we've seen double our deal flow. It's been very brisk. We had our wakeup call in mid- to late-1998 as far as development in the industrial sector. Really everybody pulled in and slowed down, but absorption remained the same.

A lot of our catch-up has been the early part of 1999, and if we can continue to do 10 to 15 million sq. ft. of absorption, which is huge, that would be great. I think we can sustain ourselves with 6 million to 9 million sq. ft. There has been some development but not the extent as in mid-1998. We're the beneficiaries of the big corporate consolidation across the country, as companies continue to buy companies and people want to move their operations to Dallas.

E-commerce is already starting to make a big impact here. We see several deals more prevalent in the last six months. You have these warehouses popping up and fulfillment centers. They're asking us how they can get 4,000 orders a day out of their warehouse. Every day we see a new e-commerce company, and a lot of companies are coming to Dallas with the VC [venture capital] money.

There hasn't been any new industrial park development here since the early-1980s. All of the parks are nearly full, so where do you go now? Champion has bought 100 acres in Coppell. Deals that big are unusual for the indu strial business. People are now buying and developing land.

Modory: Holt, a big warehouse in the 1980s was 100,000 sq. ft. Today, you don't even think about building a 100,000 sq. ft. warehouse, you think about building a 100,000 sq. ft. flex building. We're just now getting to the tip of the iceberg on this e-commerce phenomenon.

Charles Anderson Trammell Crow Co.

Mickey Ashmore United Commercial Realty

Phil Baker Baker Commercial Services

Mark Dickenson Cousins-Stone

Jeryy Fults The Fults Co.*ONCOR

Holt Lunsford The Holt Companies

Steve Modory Champion Partners

Mark Small MJS Realty

Elizabeth Trocchio Woodmont Companies

Tommy Van Zandt Transwestern Commercial Services

Ben Johnson NREI/Moderator