The demand for Denton is stronger than ever in commercial and residential real estate heading into 2020, nine industry leaders told members of the city’s Economic Development Partnership private investors group Thursday evening.
The panel spanned more than an hour and addressed the lack of office space in Denton, the changes the city could see with the Cole Ranch and Hunter Ranch developments and how a changing retail market means stores need to be “internet-proof.”
Office and retail
Denton doesn’t have the office space that the market is demanding, several industry leaders said. Cole Frazier, a broker with Frazier Commercial Real Estate, said he gets calls daily for businesses that want 5,000 to 15,000 square feet for their office.
Considering average rent prices for office space in Denton, developers wouldn’t be able to make a profit if they built new offices, said Greg Johnson, owner and broker at Verus Real Estate Advisors. It literally costs more to build than they’d be able to charge for rent. Plus, getting financing to build office space without signed tenants is risky, panel moderator Marty Rivers said.
“In my mind, office will get built for a specific user who has a need, but I don’t really see any spec office getting built,” Johnson said.
If rents caught up to construction costs, it could mean that businesses just consolidate their work spaces or set up offices in warehouses, Frazier said.
Alex Payne, owner and president of Axis Realty Group, said he’s able to meet some demand by turning old retail space into office space, like setting up government agencies at Stonehill Center. So far, they’ve converted 135,000 square feet of retail and added 40,000 square feet of office. While it works for government, it’s not the Class A style a lot of businesses are looking for, he said.
For retail, property owners are looking for tenants that are “internet-proof,” meaning they aren’t losing their sales to Amazon, Johnson said. Then, he said his company has had success with small neighborhood centers that have food and services, like a coffee shop and a gym.
Residential and multifamily
Cole Ranch and Hunter Ranch will change the residential landscape, panelists agreed, but those impacts will come several years down the road.
Right now, volume builders are helping with single-family home supply, but the increase has hurt some residential prices, said Allyson Coe, a real estate agent with Vanderlaan & Coe. Also with construction costs going up, custom homes are expensive to build, and cost more than they would be able to sell for in the current market, she said.
Lee Ramsey, a managing partner for Orison Holdings, said multifamily housing will continue to boom, even though more and more units have come online. For the properties his companies operate, there was an increase in occupancy last year even with more units. In 2018, his properties had a 95.1% occupancy rate, while in 2019 it was 95.6%. He expects this to stay even in the new year, even with new properties opening.
“Everybody says, ‘OK, we have too much in Denton,’ and the question ‘When is it enough?’ — well, the answer is one, when you’re getting lower-quality projects that the city doesn’t want and when property doesn’t lease,” Ramsey said.
Industrial and warehouse
While panelists said a lot of people think Denton is oversaturated with manufacturing plants, there is still room for growth in the market.
But there’s competition for these types of businesses around the Dallas-Fort Worth area, Payne said. When asked to identify competitors, Payne said Denton is losing projects to the Alliance area along Interstate 35W, where infrastructure is already built and ready for warehouses and manufacturing plants.
“It’s very hard to compete with Alliance with building big things down there — what they have the benefit of is infrastructure in place,” Payne said. “It’s the same cost to put those buildings up, but then the developer gets hit with ‘you need to build roads, you need to put all of this in on your dime,’ and then there’s pushback on this type of agreement to get reimbursed for those costs.”
Ron Bullock, a broker with Scott Brown Commercial, said industrial and logistics businesses are still the best bet for economic growth in Denton.
“Industrial developments, low-impact and low-density developments, do exactly what we need, and that is to bring our tax base lower impacts on our city services, lower impact on our school districts,” he said. “Economic development is about generating a tax base.”