The Lone Star state is an economic powerhouse. The state's economy is among the 10 largest in the world, with a GDP output larger than the GDP of major developed nations like Canada or Australia.
The state's economy is characterized by low unemployment rates and leading indicators in post-pandemic recovery. Texas is an attractive destination for entrepreneurs and businesses of all sizes due to several factors, including a low tax burden, an easy-to-navigate regulatory environment, access to a highly qualified workforce, and excellent rankings in innovation.
There are 53 Fortune 500 companies headquartered in the state, as well as 3 million registered small businesses. Texas also has a thriving startup scene whose performance has vastly exceeded pre-pandemic levels, with local startups attracting record levels of venture capital to the state.
All this sets the foundation for an active and prosperous commercial real estate market, especially in the state's largest metro areas, such as Houston, Dallas, and Plano.
Business and Commercial Real Estate in Houston
Houston, Texas is home to the fourth biggest concentration of Fortune 500 firms in the United States. The local economy displays high growth rates that exceed both state and national averages, and the city has been listed as the third best US city for business and the sixth best for business tax climate.
Total office inventory is approximately 190 million square feet, of which 40 million are in Houston's CBD. In the CBD, asking rents for all classes are $40 / sq ft and $45 / sq ft for Class A offices. Figures go down to $28 and $33 / sq ft respectively in suburban Houston. The highest asking rents are in the CBD and The Woodlands, and the lowest in Greenspoint / North Belt.
Vacancy rates average 26% and are significantly lower in Katy Freeway East, NASA, and Clear Lake.
Class A space accounts for the vast majority of transactions in the CBD, as relocations have been the predominant theme post-pandemic. In the short and medium term, it's expected that the gap between asset classes will continue to widen.
The main occupiers are energy companies, but the occupier base is becoming increasingly diverse with the establishment of technology, manufacturing, and aerospace companies.
Flexible office space operators are also reporting growth, and assets in this class account for 1.4% of the city's total inventory - approximately 3 million square feet. With an average cost per desk of $450 / month and the ongoing delivery of new quality assets, Houston has emerged as one of the best US cities for co-working.
Industrial real estate outperforms the office and retail markets. The Port of Houston and an established logistics network have favored the development of a thriving industrial market. Total inventory is nearly 530 million square feet, with the biggest pockets located in northwest and southeast Houston. Vacancy rates are 9%, asking rates are below $7/sq ft.
Business and Commercial Real Estate in Dallas
Dallas, Texas is a top performer in the US economy, and the Dallas-Fort Worth area is among the top five fastest-growing in the nation. The city is notorious for the strength of industries like healthcare and information technology - hence it's been dubbed Silicon Prairie - and is also known as an opportunity zone for the excellent business viability of ventures relating to financial services, manufacturing, defense, and real estate.
There are 43 Fortune 500 companies in Dallas, which is a relocation destination for many global 500 headquarters, including Exxon Mobil, Kimberly Clark, American Airlines, and AT&T, which have mostly taken up office space in downtown Dallas, Irving, and the LBJ Corridor. There are more than 65,000 registered businesses in Dallas, and nearly 60,000 of those are small companies.
Total market size is 230 million square feet, and average asking rates are $30 / sq ft, but they can reach or exceed $40 in east Dallas, Preston Center, Uptown, and Turtle Creek. Average vacancy rates for all classes are 25%.
Industrial commercial real estate continues to expand to meet demand, especially in south and east Dallas. Vacancy rates are under 5%, still below the 10-year historical average, and asking rents are on a rising trend after breaking $6.5 / sq ft. Total inventory is 890,000 square feet, with the biggest concentration in Great Southwest Dallas, DFW airport, south Dallas, and Fort Worth-Alliance.
The retail market is the exception to the post-pandemic rule, as it has experienced the highest activity levels in more than 2 decades. Occupancy rates reached nearly 94% in 2021. By asset class, the highest occupancy is in community centers, power centers, and mixed use retail.
Rental rates average Class A retail $33 / sq ft, $20 for Class B and $11 for Class C.
Business and Commercial Real Estate in Plano
The city of Plano is an affluent metropolis that has been recently listed as one of the best cities to live in the United States.
After experiencing a development boom that attracted many new residents and new businesses to the city, Plano's economy displays multiple positive indicators, including below-average unemployment rates and job growth levels that double the national average.
High quality of life standards, excellent infrastructure and easy access to the Dallas-Fort Worth metropolitan area are the reasons why many companies are establishing operations or relocating to Plano, as is the case of Toyota, which relocated its headquarters from California, or other corporations that have set up regional headquarters here, like Bank of America, McAfee, Intuit, Ericsson, and Hewlett Packard.
The most important economic sectors are financial services, trade, transportation, manufacturing, information technology, energy, and telecommunications. Plano also has a strong professional and business services industry that caters to the more than 10,000 registered companies in the city.
Plano's commercial real estate market is usually considered part of the Dallas-Fort Worth metro area, and consists of approximately 43 million square feet. Vacancy rates range from 22% in Plano CBD to 36% in West Plano. Average asking rents for Class A offices in downtown Plano are $26 / sq ft and $21 / sq ft for Class B, while in West Plano they are $38 and $28 / sq ft respectively.
As for the industrial real estate market, expansion has been the predominant theme in the Plano market, with the addition of large warehouse and logistics parks created to meet growing demand for this type of space in Plano's metro area.