Strong job growth isn’t driving as much real estate demand
June 9, 2011
By Steve Brown/The Dallas Morning News

Jobs are like rocket fuel for real estate.

Pour employment gains into the economic machine, and commercial building leasing, home sales and apartment rentals are cranked out.

Dallas-Fort Worth now leads the nation in job growth.

There was more new employment created here in the last year — 83,100 jobs — than in all of Texas’ other big-city markets combined.

D-FW has already made up more than half of the employment lost during the Great Recession.

And professional and business services, which require office space, are the fastest-growing segment of the North Texas job scene.

So why isn’t the local real estate market running at warp speed?

Homes sales are continuing to fall by about 15 percent in 2011. And office and industrial building demand — while improved from the last couple of years — is still sort of anemic.

What gives?

“We are seeing fairly good job growth in North Texas, and the pace is getting stronger,” said D’Ann Petersen, business economist with the Federal Reserve Bank of Dallas. “Eventually, the gains should boost commercial and residential activity.

“I expect job growth will translate into better [property market] performance, but it may take some time,” Petersen said.

That’s because consumers and business leaders remain unconvinced that the economic recovery has really taken hold — despite the big jobs gains we are seeing in Texas.

“Individuals and companies have valid concerns about the strength of the economic recovery, financial issues and regulation among others,” Petersen said. “I think our real estate recovery will unfold slowly this time around.”

Many companies that have finally gotten off the fence and are ready to make office and industrial deals are being stingy with their leasing. Office tenants are often taking the bare minimum space they need.

“They have learned how to get by with less,” said John Cushman, co-chairman of commercial real estate firm Cushman & Wakefield of Texas.

Gone are the sprawling private office suites and gold-plated executive washrooms, Cushman said. “Those days are over.”

And that means less net leasing, even if the economy here is adding to its workforce.

On the housing side, buyers face strong headwinds — even if they have new jobs.

Lenders are keeping a tight hold on mortgages, demanding higher credit scores and more money down.

And residential prices in North Texas are still falling.

“There seems to be a whole lack of confidence in the housing market,” said Jim Gaines, economist with the Real Estate Center at Texas A&M University. “Most people in Texas are confident that things will be better in the medium and long run.

“But we don’t know how far out that is,” he said. “There is just so much uncertainty.”

At some point, the standoff between real growth and economic perception will end.

Apartment leasing in North Texas is already booming — a given if new workers aren’t buying homes.

And the Dallas-Fort Worth area is a top U.S. market for population growth, which will eventually mean more housing demand.

But as Gaines so rightly puts it, “eventually isn’t here yet.”

Top U.S. job markets
Year-over-year gain in total employment in each market as of April:

Market                      Jobs gained

Dallas-Fort Worth            83,100

Houston                         51,100

Chicago                         37,100

Los Angeles                    36,200

Phoenix                         28,800

Washington, D.C.            25,700

Milwaukee                      23,400

Seattle                           22,700

New York                        22,400

Boston                           20,900

Texas’ other big markets

Austin                            15,200

San Antonio                    7,000

SOURCE: Bureau of Labor Statistics

Courtesy The Dallas Morning News
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