Is the next commercial real estate cycle in North Texas?



For nearly three years, the question seemed important: how long will this “cycle” last?

It got to the point where it became the number one topic at every real estate event. Almost every meeting I have with lenders, investors, brokers, capital markets teams, or my fellow developers started with the same question.

Nick Summerville, Kaizen Development

Opinions varied, but the dialogue that began to take shape was the categorization of deals as “this cycle” or “next cycle.” Then last spring, we were all suddenly presented with an answer, ending the real estate life cycle that began around 2010.

It was not a bubble bursting, fundamentals eroding, overly leveraged borrowers, presidential elections, war, or any other common suspicion. Instead, he became the heavyweight champion of the Black Swan competition the world has never seen before.

The coronavirus has effectively stopped the global economy and society. For most of us in real estate, we’ve seen corporate leasing activities cease, shopping malls and restaurants closed, buying pools for certain asset classes dried up, and lenders and investors tightened control over their capital.

Almost sixteen months after the start of the North Texas quarantine, my level of discomfort was replaced by an overwhelming sense of excitement and optimism because I believe the “next cycle” is finally here in North Texas real estate … and it can be more than the last cycle!

All the trappings that fueled the North Texas real estate boom during the latest cycle have remained intact. The extra octane in North Texas real estate during this next cycle appears to be due to a doubling of excessive government efforts from many of the US coastal states and major metropolitan areas.

Our region has always been a major competitor for offering a supportive regulatory and tax environment, but now there are dozens of small intangibles and simple day-to-day freedoms that are becoming the driving force for people and businesses moving to North Texas.

Late last fall, I was on a tour with a West Coast corporate office tenant. During the tour, we talked about the company’s success in recruiting West Coast employees to North Texas. A key member of their team opposed the move until he visited North Texas with his wife for an overnight stay. They moved here after three weeks. What was selling them? Simple freedom to go out to dinner at a restaurant.

To be clear, the next cycle will not be a “win-win” by default simply because other states mistreat their businesses and taxpayers. North Texas wins deservedly in many different categories, making it easier for people to move here.

Our arts, entertainment, sports, shopping and dining are some of the finest in the country. The people here are warm and welcoming. Unlike our Central Texas neighbors, our infrastructure has kept pace with growth and the housing market continues to offer far more value and affordability than other major metropolitan areas.

While this all sounds like a general commercial move for North Texas, these are literally the comments I hear constantly from friends and clients who have become North Texans or are preparing to do so. Unfortunately, we still have a few misconceptions to overcome, but fortunately, these tend to be reversed when someone visits North Texas for the first time.

Ironically, we started seeing a spike in office travel and rentals ahead of Thanksgiving last year. It all started with small groups of tenants ranging from 5,000 to 15,000 square feet, followed by mid-sized tenants at the end of winter, and now we see large (+50,000 square feet) corporate tenants in the market all the time. About one in four of our new tenants or potential tenants are new to the market. Almost all of our tenants and potential tenants are very optimistic about their growth trajectory.

The last cycle in real estate has been long and successful. This has brought many great companies, buildings, diverse citizens, and increased tax revenues to every city in our region.

Since our last cycle serves as the basis, I truly believe that the stars align so that the next cycle is longer and stronger than the previous one. Ironically, the black swan event that took us out of the last cycle is what I predict will fuel our next cycle.

As real estate professionals and North Texas residents, let’s enjoy the ride, remember our Texas values, and not let people forget why they came here.

Nick Summerville is Managing Partner and Chief Operating Officer of Kaizen Development Partners.


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