With commercial building rents soaring and property values moving higher, Dallas' real estate market is drawing double takes.

Unlike a few years ago, when many properties offered up for sale went begging for takers, today's investors complain they can't find enough Dallas real estate to purchase.

Vacancy rates in commercial buildings are at the lowest point in more than a decade. And construction, so far, can't keep up with the demand for industrial retail, apartment and even office in the Dallas area.

"The real estate market hasn't looked this good in a long time," says Michael Prentiss, CEO of Dallas-based Prentiss Properties Trust, which recently had its first public stock offering. "Unlike a few years ago, there's now a lot of positive news to report."

Even the central business district, which lagged in Dallas' recovery in the early-1990s, is showing new strength with tenants taking advantage of large blocks of competitively priced office space. The opening of Dallas' first light-rail transit line has also given a boost to downtown.

But the real benefactor for Dallas' reborn commercial real estate market is the area's dynamic employment growth.

"As job growth goes, so goes the real estate market," says Ted Jones, an economist with Texas A&M University's Real Estate Center. "And right now, it's a great time to be in the real estate business in Texas."

Dallas has been near the top of the list of the country's fastest-growing employment markets for the last three years. And 1996 promises to see the area create another 80,000 or so new jobs.

"We are enjoying one of the longest periods of strong employment gain this area has ever seen," says Ron Witten, president of Dallas-based M/PF Research Inc. "That job growth is translating into a high demand for all types of real estate."

Dallas ranks fourth nationally in 1996 among markets with the most business and government worker relocations. Only Chicago, Houston and Atlanta have more relocations than Dallas, according to PHH Corp., the Maryland-based relocation service firm.

Companies including Pizza Hut, Capital One, Quaker State Oil and Transamerica Corp. have transferred large numbers of workers to the Dallas area in the last year.

That's fueled a residential building boom.

Through the first half of 1996, housing starts in the Dallas area were up almost 25%. And after a slowdown in apartment building early in the year, multifamily development is at the highest rate since the early-1980s.

Commercial construction volume in the Dallas area is running 60% ahead of 1995's building pace.

Commercial property sales are down by about 15% this year. But not because of lack of investor interest.

"For the last two years, what we have seen is investors chasing a declining number of deals," says George Roddy, CEO of the Dallas-based real estate research firm Roddy Information Services. "We are just not seeing the number of sales that we had back when the recovery started. Back then, there were plenty of properties available, and prices weren't as high as today."

Income properties that are trading in the Dallas area this year have brought near record-high prices for the 1990s.

An institutions investor represented by New York-based Jones Lang Wootton USA recently paid about $125 per sq. ft. for the 16-story 5950 Berkshire Lane office tower in the midtown Preston Center area. The 182,000 sq. ft. granite and glass highrise was built in 1984 and was 92% leased at time of sale.

"Building prices have moved up dramatically," says Thomas Bakke, senior vice president of Chicago-based Equity Office Properties, which owns more than 1 million sq. ft. of Dallas-area office space that is about 94% leased. "We absolutely want to own more buildings in Dallas. But we are struggling to make our numbers work at today's prices."

Average office building sales prices are up by more than one-third this year in Dallas.

Several buildings in Dallas' north suburbs have sold near $100 per sq. ft.:

* The L&B Group, Dallas, purchased the 10-story Executive Center II building in North Dallas for about $100 per sq. ft. The 12-year-old building is fully leased to Texas Instruments Inc.

* A partnership represented by Chicago-based LaSalle Advisors paid more than $30 million for the Park Central III & IV office buildings. The Park Central buildings, which are leased to JCPenney, are on LBJ Freeway.

* Atlanta-based Equitable Real Estate Investment Management Inc., representing one of its investment funds, purchased the 20-story NorthPark Central office tower. Built in 1984 and remodeled in the 1990s, the building sold for more than $100 per sq. ft.

* The Benton Cos. of Dallas purchased the former Lomas Financial Corp. headquarters complex near Love Field. The office campus includes an eight-story executive tower and several low-rise buildings and contains more than 700,000 sq. ft. "It's a perfect facility for a headquarters relocation," says Bob Cozean, a partner with Benton Cos. "We're going to be marketing the buildings both locally and nationally."

* An affiliate of Houston-based Transwestern Property Co. has purchased two Dallas-area office buildings, the 18-story Highland Park Place office tower just north of downtown and the 19-story Park Forest 111 tower in North Dallas. Transwestern Investment Co. acquired the Dallas buildings to kick off a $100 million nationwide investment fund. "We hope to make a series of purchases during the coming months," says Transwestern Property chairman Robert Duncan. "Most of the buildings will probably be in the Southwest."

Dallas-area buildings that are offered for sale usually have multiple bidders.

"Any time a good property comes on the market you are going to see a lot of competition," says lack Minter, who heads the Dallas office of Los Angeles-based Cushman Realty.

In the last year, Cushman Realty has handled the sale of several Dallas-area office buildings including Toronto-based Trizec Properties Inc.'s acquisition of the 56-story Renaissance Tower in downtown Dallas. Prudential Realty sold the 1.7 million sq. ft. skyscraper for more than $100 million.

"Things have slowed down a little bit in Dallas because so much property has already traded," Minter says.

But Sandy Rowe with Transwestern Investment Co. predicts more Dallas income properties will change hands during the coming year as investors who bought early in the Texas real estate recovery sell and take their profits. "We still see properties priced in Dallas at attractive discounts from replacement cost," Rowe says.

About the only question hanging over the Dallas real estate market is how long the current boom will last. Most analysts and real estate executives are hoping for several more years of activity.

"We're planning for continued activity and are adding to our staff." says Robert Young, sales manager of Grubb & Ellis Co.'s Dallas office. "The Dallas real estate market is so dynamic that it's great to be in the business again."

Office in demand

With net office demand expected to reach almost 4 million sq. ft. this year, Dallas will be one of the top office leasing markets in the country in 1996. But tenants looking for large blocks of first-class office space had better hurry.

At the end of rune, only about 13% of Dallas' suburban office space was vacant. That's down from an almost 30% vacancy rate at the depths of the 1980s regional recession.

"The options for tenants who need office space are really starting to vanish," says Jerry Fults, president of Dallas-based Fults*Oncor. "Unless they want to go downtown or pay for a new building, there aren't many choices left. We need, right now, somewhere between 2 million sq. ft. and 3 million sq. ft. of office space."

"Three or four years ago, people were still saying that we still had a 15-year supply of office space," Fults says.

In many of the Dallas area's more popular suburban office markets, less than a 10% supply of empty office space remains available, according to surveys by Fults*Oncor and Cushman & Wakefield of Texas.

"We are basically out of space in Las Colinas," says Dary Stone with Faison-Stone Inc., which manages the mixed use development near Dallas-Fort Worth International Airport. "Even in the cases where we have had tenants move out of large blocks of space, the vacancy has quickly re-leased."

Developers are scurrying to get new projects on the drawing boards. And development plans have been announced for almost a dozen new suburban office buildings. Most of the planned projects range in size from 150,000 sq. ft. to 300,000 sq. ft.

"It's just the beginning of a building cycle, and people are still pretty leery of new development," says Reagan Dixon, who heads Cushman & Wakefield's Dallas office. "There is not going to be 20 spec buildings coming out of the ground -- that's just not going to be the case. But office demand is still strong, and there are 3 million sq. ft. to 3.5 million sq. ft. of tenants looking for space right now."

Most of the multitenant building developers are working on or quoting rents ranging from about $20 to $24 per sq. ft. annually.

That's significantly higher than the average Dallas-area office rent of about $15 per sq. ft. But well-located, Class-A buildings in North Dallas and the Oak Lawn area already quote rates above $20 per sq. ft.

"We are seeing rental rates quoted now at the highest rates ever in some locations," says Jeff Deweese with Los Angeles-based CB Commercial. "A lot of these buildings were built in the 1980s with the idea of getting these high rates, but the market turned down, and nobody ever paid them."

Average rents in Class-A office buildings are up by more than 10% this year.

"There is a lot of sticker shock among tenants at renewal, and it's going to continue," Dixon says.

Drew Peterson, executive vice president with Arledge/Power Real Estate Group, Dallas, agrees. "The Dallas office market is a lot different today from the last time most tenants signed an office lease," Peterson says.

This summer, several large Dallas office tenants, including Dr Pepper/Seven Up and PageNet Inc., announced plans to build their own suburban, campus-style offices in did recently to the Dallas area.

"We are looking at a number of situations where people are interested in building new campus-style offices," says Roger Staubach, founder of Dallas-based Staubach Co. "You can build a very nice building today for around $125 per sq. ft. You are going to start seeing more construction, because the vacancies are disappearing, and the rents make a build-to-suit a viable alternative."

Several multitenant office buildings have been announced for the Dallas area:

* Champion Partners plans to build a 170,000 sq. ft. office building in Las Colinas. The three-story speculative building kicks off a 72-acre office and industrial park Champion announced in duly. Champion has previously concentrated on industrial building.

* Harwood Pacific Corp. announced a second, 10-story building in its International Center complex just north of downtown. Law firm Jones, Day, Reavis & Pogue will be the lead tenant. Harwood Pacific is finishing work on a 220,000 sq. ft. building in the project that is leased to Centex Corp.

* Dallas-based DalMac Investments and Granite Properties are developing a three-building, 177,000 sq. ft. office complex in Richardson. Siemens-Rolm Wireless Communications has leased 50,000 sq. ft. of space in the project. And Minneapolis-based ADC Telecommunications has leased 60,790 sq. ft. in the project.

* Campbell Glen, a two-building, 19acre office complex, is being built by Opus South Corp. in the suburb of Richardson. Opus is developing a 150,000 sq. ft. spec building and a 60,000 sq. ft. build-to-suit office for computer software firm 7th Level Inc.

* MEPC American Properties is preparing plans for a third-phase office tower addition to its Colonnade complex on the Dallas North Tollway in Addison.

* Developer Avex Group is marketing a 150,000 sq. ft., six-story office building on North Central Expressway in Richardson. Bradford Realty Services, Dallas, is representing the property

Dallas-based Trammell Crow Co. has several Dallas-area office buildings in the development pipeline. The most visible project is the 5950 Sherry Lane office tower, which Crow hopes to start this year on the Dallas North Tollway in Preston Center. The $30 million, nine-story building will contain 181,000 sq. ft.

Trammell Crow has also tied up an office site on the Tollway further north in West Plano and is soliciting tenants for a corporate build-to-suit.

"All of these projects are market driven, and the first one where we have the tenants in place is the one we will start first," says Trammell Crow executive vice president Chuck Anderson.

Industrial supply meeting demand

Unlike a few years ago, industrial developers in many cases are no longer waiting for tenants to kick off new construction.

At midyear, more than 8 million sq. ft. of Dallas-area industrial construction was under way. And almost three-fourths of it was speculative, according to a report by Fults*Oncor.

"We have seen considerable new product coming on the market since 1994," says Fults senior vice president Thomas Pearson. "The difference today is that most of it is speculative and is not partially preleased. It appears we have ample supply of distribution space coming on stream to meet current demand. However, more landlords will be competing for tenants as the new space enters the market."

Fults estimates that almost 10.5 million sq. ft. of warehouse projects are scheduled for 1997.

With warehouse vacancy rates below 8% citywide, there has been a lack of available distribution space in many sections of the city. Most of the warehouse development is concentrated in the Richardson-Plano market, in the Great Southwest Industrial District in the MidCities and near Dallas-Fort Worth International Airport.

Expanding industrial tenants absorbed about 3.4 million sq. ft. of warehouse space in the area in the first half of 1996. Rents in most new buildings start at close to $4 per sq. ft.

Myers & Crow Co. has broken ground for a 149,000 sq. ft. office warehouse in the Highlands Business Center in the northwest suburb of Carrollton. It's the latest in a series of industrial projects the developer has built during the last three years.

"We still see good strong demand, and there are more outside businesses moving to the state and wanting to expand here," says developer Marc Myers. "There is no question that in certain submarkets you are going to have to be careful and see some absorption before you build a lot more spec space. But the tenant demand will be there."

Recently, there have been several Dallas-area industrial starts.

* Precept Builders Inc. is constructing a 156,000 sq. ft. warehouse for Security Capital Industrial Trust in the Great Southwest Industrial District in Grand Prairie. The building is scheduled for completion in November.

* General American Life Insurance Co. is building a 23. acre, four-building office/warehouse/tech complex in Plano. The Summit Technology Business Center will contain almost 800,000 sq. ft. and is being managed by Fults*Oncor

* Transwestern Property Co. is building a 12-acre, 300,690 sq. ft. industrial complex in Grand Prairie. The Regency 6 building is planned for opening in February.

* International Capital has teamed up with long-time Dallas commercial builder Centre Development to build two office/industrial buildings. The project will contain about 140,000 sq. ft. and is located in the Plano-Richardson market.

* Dallas-based Paragon Group and Milwaukee-based Northwestern Mutual Life Insurance Co. have formed a joint venture to develop up to 1 million sq. ft. of warehouse space on a 60-acre tract in the northwest suburb of Coppell. The project will be located in Park West Commerce Center near LB) Freeway and Airline Drive. Construction on the first, 367,000 sq. ft., building is under way.

* Champion Partners is developing a 1.2 million sq. ft. warehouse complex just south of DFW International Airport. The three-building Regency Business Park development includes a 470,000 sq. ft. regional distribution center for GE Appliances.

Other major industrial builders are tying up land for further construction.

Commercial Developments International East of New York, a subsidiary of Kajima Corp., has purchased a 17-acre site in Las Colinas for an office/industrial complex. "We consider this an outstanding investment in one of the best of all suburban office markets," says Alan Kessler, CDI East president.

And MEPC American Properties has purchased an additional 28 acres in the Freeport North Business Park Coppell near DFW International Airport to continue its industrial building program.

"We've finished just under 1 million sq. ft. of industrial space already this year," says Ab Atkins, MEPC regional industrial vice president. "We've finished a 380,000 sq. ft. corporate headquarters and distribution center for Craftmade International Inc. in Coppell."

MEPC still has about 560,000 sq. ft. of warehouse projects under construction.

"During the coming months we're going to be starting a series of developments that will total about 940,000 sq. ft. in Irving, Lewisville and Coppell," Atkins says. "These buildings are going to be geared more for smaller tenants and higher finish tenants."

Construction begins in retail

After taking a break in building in late 1995 and early this year, Dallas retail developers have started back up with more shopping center construction.

Almost 1 million sq. ft. of additional retail space was built in the area during the first half of 1996. That compares with 1.6 million sq. ft. of retail construction in 1995, according to surveys by Dallas' Weitzman Group.

"Since the majority of the new construction is already preleased, there is not going to be a lot of excess space," says Weitzman Group president Herbert Weitzman. "Our retail market is on track to exceed what we saw in 1995."

Developers and market analysts attributed the strong retail construction market in Dallas to rapid economic growth in the area.

"The economic indicators are so strong in this part of the country that it is driving construction and leasing," Weitzman says. "Retailers and restaurants continued to open at a steady clip during the first half of 1996 as they sought their share of the area's strong sales."

Expanding retailers fueled 1.6 million sq. ft. of shopping center absorption in the first half of 1996 -- about the same leasing rate as last year.

Overall vacancy rates have dwindled to the lowest point in more than 10 years. At the end of July, about 12% of Dallas' retail space was empty. And many areas, including far North Dallas and the Park Cities/Oak Lawn area, have less than a 10% average vacancy.

Retail tenants in new strip centers are paying $ 16 to $ 18 per sq. ft. annually on average, according to the Weitzman Group. That's up from an area average rent of about $10 per sq. ft. in recent years.

Many prime retail centers are quoting more than $25 per sq. ft.

"Development and build-to-suit are accounting for most of the market's activity," says Vaughn Miller, who heads the retail brokerage division for Miller Commercial Real Estate. "There is a lot of in-fill development on previously undeveloped locations. But the in-line space isn't leasing as fast as I would have thought," Miller says.

The largest new Dallas retail project is Houston-based Hines Interests' addition to its 12-year-old Galleria shopping mall. Along with Texas' first Nordstrom's store, the three-level expansion includes about 150,000 sq. ft. of multitenant space.

Just east of the Galleria, expansion is also under way at Valley View shopping mall. Owner LaSalle Partners has leased a vacant Bloomingdales department store to JCPenney.

Southwest Properties Group is also doing an extensive renovation of the 11year-old Village on the Parkway shopping center just north of the Galleria. Southwest Properties acquired the 375,000 sq. ft. specialty shopping center from Metropolitan Life Insurance and is spending about $30 million to update it.

DalMac Investments Corp. is continuing its retail development adjacent to the Vista Ridge Mall in Lewisville. The three-phase Vista Ridge Village complex was started in 1993. DalMac recently signed several new anchor tenants including HomePlace, Talbots and Discount Party Super Store.

Cencor Realty Services Inc., the development affiliate of the Weitzman Group, is building the 128,500 sq. ft. Willow Bend Market shopping center in West Plano. The development is anchored by a 70,500 sq. ft. Tom Thumb store.

Transwestern Property Co. and Lowe Enterprises have remodeled the 325,000 sq. ft. White Rock Marketplace shopping center in northeast Dallas. Anchors in the project include Tom Thumb supermarket, Marshalls, Home Depot and Service Merchandise.

Several new regional shopping centers have been announced for the Dallas area and are in the planning stages.

Mills Corp. and Simon Property Group have announced plans for a 1.6 million sq. ft. outlet center, Grapevine Mills, which will be located on State Highway 121 just north of DFW International Airport.

California-based Hapsmith Development Corp. proposes to build a similar project, its 226-acre SuperMall of the Southwest in Irving. Hapsmith, which is targeting many of the same retailers as Mills and Simon, hopes to begin construction late this year. Shopping center analysts predict that only one of the projects will be built.

Investor interest in Dallas-area retail projects remains high.

Prudential Real Estate Investors this summer purchased the 363,000 sq. ft. Preston Shepard Place shopping center in Plano. Major tenants in the development include HomePlace, MJDesigns and Borders Books.

And United Commercial Realty sold two Dallas-area shopping centers to Pacific Retail Trust. The 326,116 sq. ft. Casa Linda shopping center in northeast Dallas and the 111,435 sq. ft. Valley Ranch Center in Coppell represented about 20% of UCR's shopping center inventory and sold for almost $45 million.

Apartment market stays healthy

After an early scare about possible overbuilding, Dallas apartment developers are continuing to start projects throughout the area. And while construction is at its highest level in more than 10 years, apartment rents are still rising, and vacancy levels are down from a year ago.

At midyear 1996, only about 4.5% of Dallas apartments were empty. That's the lowest vacancy rate since 1982.

Late last year and in early-1996, real estate analysts had worried that construction of almost 15,000 new apartments in the Dallas area would hurt the market. But so far, it hasn't happened.

"We clearly have seen the peak of the new supply for this cycle and survived it," says Witten of M/PF Re search. "Our apartment market is a lot healthier than we anticipated."

The strong local economy and job growth helped fill up the thousands of new apartments that have opened in the last year. Apartment demand has been running about one-third higher than expected this year. Average apartment rents were up 5.4% from a year ago.

Developers are breathing a sigh of relief that forecasted downturns in occupancy haven't happened.

"The concerns about overbuilding didn't materialize," says Peter Parrot, who heads the Dallas office of Gables Residential Trust. "Most Dallas developers are now sure that the sky isn't falling."

Much of the new apartment development is centered in the same areas of the city -- West Plano, far North Dallas, Las Colinas and Oak Lawn. The new units are renting for between $0.80 and $1 per sq. ft.

The Dallas area's major apartment developers are continuing to break ground.

Having finished its 480-unit Jefferson at Gaston Yard apartment complex on the east side of downtown, developer JPI is preparing to build a similar project on the northwest side of the central business district.

In suburban Richardson, JPI is building a 32.5-acre, 528-unit apartment community called Canyonwood. The complex will be a prototype for the developer's future luxury apartment communities.

Landon Residential Partners has announced plans for a 380-unit apartment complex in Plano's Legacy business park. And the developer has purchased almost 40 acres in Richardson for another multifamily complex.

Dallas-based Columbus Realty has broken ground in the northern suburb of Addison on a 458-unit apartment complex in the project. The five- and six-story buildings will contain retail space on the ground floor and will cost about $30 million to build. The project is part of the 70-acre, $400 million Addison Circle complex, which will contain more than 3,000 apartments, shops, parks and open space, a hotel and office buildings.

In the McKinney Avenue corridor north of downtown Dallas, Columbus has begun work on a 182unit apartment project that is one of a series it has built in the area. During the last four years, Columbus Realty has built or purchased almost 1,500 units in the McKinney Avenue area.

But Columbus CEO Robert Shaw still worries about the amount of construction in Dallas.

"I don't believe things are as good as the numbers indicate," says Shawl "All of the new projects are giving rent specials. Only as long as our economy continues strong and supply continues down will we be able to make our way back to a healthy market."