Dallas-Fort Worth: A Thriving Hub for Corporate Expansion

The Dallas-Fort Worth area has firmly established itself as a thriving hotspot for commercial real estate investment, making it an attractive destination for businesses looking to expand or relocate. In this article, we will delve into the compelling reasons that make the Dallas-Fort Worth area a prime choice for commercial real estate ventures, business expansion, and corporate relocation.

Dallas Fort-Worth At A Glance

Unemployment Rate: As of July 2023, the Dallas-Fort Worth metropolitan area records an unemployment rate of 4.1%, indicating a minor uptick of 0.2 points from June. Despite this slight increase, the region maintains an unemployment rate on par with the Texas state rate of 4.1% and slightly higher than the national rate of 3.5% for the same period.

Employment Change: July 2023 witnessed a year-over-year employment increase of 4.4% in Dallas-Fort Worth, equivalent to a staggering 178,600 additional jobs. Impressively, total employment in the area has surged to a remarkable 11.5% higher than pre-pandemic levels, underscoring the robustness of the local job market.

Consumer Price Index (CPI): In July 2023, Dallas-Fort Worth reported a CPI of 4.0%, a testament to the region's economic vibrancy. Notably, the core inflation rate, which excludes food and energy, stands at 6.4%.

DFW Workforce

The Dallas Regional Chamber highlights several advantages associated with the workforce and strategic location in the Dallas-Fort Worth area:

• Skilled Workforce: Dallas, Fort Worth, and neighboring cities in the Metroplex benefit from a well-educated and highly skilled workforce spread across the 11-county region. This workforce, totaling 4.3 million people, is supported by an extensive network of transportation infrastructure, including interstate highways, state highways, tollways, and public transit options. This infrastructure not only facilitates convenient commutes but also enables businesses to access talent efficiently.

• Cost of Living: The region's relatively low cost of living is a significant draw for both employers and employees. It allows businesses to tap into a robust workforce while offering employees the flexibility to choose their preferred communities to live in, ranging from established neighborhoods to fast-growing areas and rural settings.

• Abundant Working-Age Population: With approximately three-quarters of the region's 7.8 million residents falling within the working-age bracket, Dallas-Fort Worth offers a substantial pool of talent. The civilian labor force size in Dallas-Fort Worth is exceeded only by larger metropolitan areas such as Chicago, Los Angeles, and New York.

Relocating to the Dallas Fort Worth Area

Dallas-Fort Worth is experiencing a significant influx of business expansions and relocations, as exemplified by more than 40 expansion and relocation announcements in 2022. Here are just a few:

• Goldman Sachs: The New York-based financial giant is undertaking the development of a three-building, 980K square-foot office project in downtown Dallas that will house up to 5,000 employees.

• TIAA: A leading provider of retirement and investment solutions, TIAA, is making substantial investments in the area. Their plan includes constructing a new corporate center in Frisco with a $58M investment, creating 2,000 new jobs.

• Boingo Wireless: The wireless network company has chosen to relocate its headquarters from Los Angeles to The Star in Frisco, with the capacity to accommodate up to 250 employees.

• Caterpillar: The Fortune 500 manufacturer of construction and mining equipment has decided to relocate its headquarters from Chicago to Irving, signaling its commitment to the region.

• Wells Fargo: The San Francisco-based banking giant is making a significant impact by constructing a $200M regional campus in Irving. This state-of-the-art facility is set to house 4,000 workers, contributing to the region's economic growth.

Dallas Texas Tax Rates 

The business landscape is significantly impacted by the regulatory environment and tax structures in a region. These factors play a pivotal role in determining a business's overall costs and risks. In the case of Dallas-Fort Worth, Texas, the region offers a favorable tax and union profile that attracts businesses and investors.

Low Tax Burden: Texas is renowned for its business-friendly tax policies. The state imposes relatively low taxes, making it an attractive destination for businesses. The tax structure comprises several components, including state, city, county, transit, and special purpose district taxes.

• State Tax: The state sales tax in Texas stands at 6 1/4% (0.0625).
• City Tax: The city tax rate varies between 1/4% and 2% (0.0025 - 0.02), depending on the local option rate.
• County Tax: Counties levy a tax ranging from 1/2% to 1 1/2% (.005 - 0.015), depending on the local option rate.
• Transit Tax: Transit taxes range from 1/4% to 1% (.0025 - 0.01), contingent on the local option rate.
• Special Purpose Districts: Special purpose districts may impose taxes varying from 1/8% to 2% (.00125 - 0.02), depending on the local option rate.

Texas Franchise Tax: While Texas imposes a franchise tax on taxable entities like corporations, LLCs, banks, and partnerships, this tax only applies to entities earning above a certain threshold. For instance, in 2023, entities earning up to $1.23 million will pay no franchise taxes. The tax is not applicable to sole proprietorships, general partnerships with individual owners, or certain trusts, among others. Franchise tax rates include:

• **0.75% (0.0075) of margin for most taxable entities.
• **0.375% (0.00375) for qualifying wholesalers and retailers.
• **0.331% (0.00331) for entities with $20 million or less in Total Revenue (annualized per 12-month period on which the report is based).

Labor Laws in Texas

Is Texas a Right to Work State?

Yes, Texas is a right to work state. In right-to-work states like Texas, employees are not obligated to join labor unions. This characteristic contributes to a favorable tax climate ranking for the region. Additionally, the Dallas-Fort Worth area experiences significantly lower union activity compared to other regions. This combination of low taxes and minimal union activity further enhances the region's appeal to businesses and investors.

Dallas Utilities

Water, Sewer, Gas, & Telecommunications: To accommodate its rapid growth, the Dallas-Fort Worth region prioritizes securing reliable sources of utilities. Abundant lakes and substantial natural gas reserves in the Barnett Shale formation ensure a steady supply of water and gas for the foreseeable future.

Moreover, the area is a robust telecommunications hub with key companies like AT&T and Texas Instruments headquartered in the region. The extensive fiber networks of multiple carriers interconnect North Texas cities, the broader U.S., and global telecommunications infrastructure. Redundancies in connectivity, coupled with the region's relative immunity to natural disasters, result in minimal downtime for businesses. The rollout of 5G technologies by major service providers further enhances connectivity, allowing businesses in Dallas-Fort Worth to remain seamlessly connected internally, with other businesses, and with their customers.

Cost of Doing Business in Dallas-Fort Worth

When it comes to the cost of doing business, Dallas-Fort Worth shines as an exceptionally affordable option, boasting costs up to 3% lower than the national average. The region's attractiveness for businesses is underpinned by several factors:

Low State and Local Taxes: Dallas and Fort Worth consistently rank below other major U.S. business centers in terms of state and local taxes. These lower tax burdens significantly contribute to the cost-effectiveness of operating in the region.

Competitive Labor Costs: Median wages and salaries in the Dallas-Fort Worth region typically track below those in other major metropolitan markets. This is attributable to Texas' pro-business labor environment and its low taxes. Additionally, the availability of affordable housing in the region ensures that employees can enjoy a higher standard of living at a lower cost compared to other major markets.

Unemployment Insurance Tax Rate: For new employers in Texas, the unemployment insurance tax rate starts at 2.7% or the NAICS industry average rate, whichever is higher. The rate remains at the entry level until the employer's account becomes chargeable with claims for unemployment benefits for four complete quarters. Afterward, the effective tax rate is calculated based on taxable wages. In 2023, the average tax rate is 1.16%.

Industrial Real Estate in Dallas

Dallas-Fort Worth led the nation in industrial commercial real estate development in 2022, adding a substantial 64 million square feet to the pipeline, accounting for nearly 15 percent of all new deliveries in the U.S. The region also ranked as the top market for sales, boasting $8.8 billion in volume according to the Commercial Edge National Industrial Report.

Industrial space in Dallas-Fort Worth is strategically distributed throughout the region, with concentrations in areas such as:

• Fort Worth's AllianceTexas
• Areas surrounding Dallas Fort Worth International Airport
• The Inland Port in southern Dallas County, along Interstate 20 and U.S. Highway 67
• Suburbs including Arlington, Garland, Grand Prairie, and Coppell
• Developments along the Interstate 35E corridor between Dallas and Lewisville

The robustness of the industrial market in Dallas-Fort Worth can be attributed to the region's strong economy, coupled with its low taxes and labor costs. This combination sustains the region's desirability as a prime destination for real estate investment.

Dallas Fort Worth Business Incentives

Dallas-Fort Worth boasts a vibrant business culture, with municipalities in the region offering various local incentive programs to attract and support expanding or relocating businesses. These incentives range from tax abatements to tax increment financing, infrastructure development, and free-trade zones. These programs work collectively to maintain a low cost of doing business, providing job-creating companies with a competitive edge.

These local incentives differ among cities, offering a spectrum of options suitable for various projects. In addition to these local incentives, several statewide programs further encourage job creation, innovation, and business setup in Texas. Some of the popular incentives in Dallas-Fort Worth and Texas include:

Dallas Local Incentives

• Type A and B Economic Development Corporations: These mechanisms provide cities with the means to support new and expanded business enterprises. By instituting a voter-approved sales tax to fund an economic development corporation (EDC), cities can offer cash incentives to businesses for project costs. Type A EDCs typically fund industrial development projects, while Type B EDCs focus on community improvement projects.

• Tax Increment Financing District: This financing tool is used to fund infrastructure improvements in underserved areas. Local governing bodies create a Tax Increment Reinvestment Zone, and improvements are financed through future tax revenues generated by properties in the zone.

• Chapter 380/381 Agreements: These agreements grant legislative authority to local governments to offer incentives for economic development projects through loans, grants, and the use of city staff, facilities, or services at minimal or no cost.

• Tax Abatements: Property tax exemption agreements between taxpayers and local taxing units, excluding school districts, to attract or retain businesses.

• Freeport and Goods-In-Transit Exemption: Property tax exemption for qualifying inventory temporarily stored in Texas for sale outside the state.

Texas Business Incentives 

• Manufacturing Exemption: Exemption from state sales-and-use tax for taxpayers involved in manufacturing, fabrication, or processing tangible property for sale.

• Natural Gas and Electricity Exemption: State sales and use tax exemption for manufacturing companies' use of electricity and natural gas in manufacturing, processing, or fabricating tangible personal property.

• Data Center Exemption: State sales and use tax exemption for tangible property necessary to operate a data center.

• Research And Development Tax Credit: A choice between a franchise tax credit or state sales tax exemption for materials, software, and equipment used for qualified research and development activities.

• Governor's University Research Initiative (GURI): A matching grant program designed to help eligible Texas academic institutions recruit distinguished researchers in STEM fields and medicine.

• Skills Development Fund (SDF): A grant program administered by the Texas Workforce Commission that provides customized job training to businesses seeking to upgrade employee technical skills.

• Texas Product Development and Small Business Incubator Fund (PDSBI): A revolving loan program aimed at aiding the development, production, and commercialization of new or improved products and stimulating small business growth.

Federal Incentives

• Foreign Trade Zones: Restricted-access sites that offer cost-saving benefits to users, such as importers, manufacturers, and distributors.
• Opportunity Zones: A tax provision designed to promote economic development and job creation in economically distressed communities, providing tax benefits to investors who reinvest capital gains into Qualified Opportunity Funds.

The Opportunity Zones tax provision is designed to spur economic development and job creation in economically distressed communities. Three tax benefits are available to investors who reinvest capital gains into Qualified Opportunity Funds. These funds can finance various projects in designated census tracts called "Opportunity Zones."

Tax Credits in Dallas

1. Temporary Capital Gains Deferral: Capital gains reinvested in an Opportunity Fund within 180 days can be deferred from taxable income until December 31, 2026, or the date the Opportunity Fund is disposed of, whichever comes earlier.

2. Step-Up Basis: Gains reinvested in Opportunity Funds receive a 10 percent step-up in basis after five years and an additional step-up of five percent at seven years if invested before December 31, 2019. A maximum of 15 percent of the original gains may be excluded from taxes.

3. Permanent Exclusion of Taxable Income on New Gains: For investments held for a minimum of 10 years (up to 30 years), investors pay no taxes on any capital gains produced through their investment in Opportunity Funds.

Here are some of the top grants awarded from the Texas Enterprise Fund (TEF) to businesses in the Dallas-Fort Worth area:

• Toyota Motor North America, Inc.: Automotive HQ Relocation, Direct Jobs: 3,650, Capital Investment: $345,000,000, TEF Grant: $40,000,000, City: Plano.

• Triumph Aerostructures: Industry: Aerospace Manufacturing, Direct Jobs: 3,000, Capital Investment: $598,000,000, TEF Grant: $35,000,000, City: Dallas.

• Raytheon: Industry: Aerospace & Defense, Direct Jobs: 200, Capital Investment: $21,700,000, TEF Grant: $1,000,000, City: McKinney.

These incentives, both at the local and state levels, underscore the region's commitment to fostering economic growth, supporting innovation, and attracting businesses and investments. Dallas-Fort Worth's appealing combination of low taxes, strong infrastructure, and business-friendly policies makes it a prime destination for enterprises seeking to expand or relocate.

National Real Estate Investment Trends

The appeal of high-performing secondary markets, particularly in the Sun Belt, continues to attract investors. Dallas-Fort Worth, along with cities like Miami, Austin, Nashville, and Raleigh-Durham, is poised for exceptional performance in this regard.

According to CBRE's 2023 U.S. Investor Intentions Survey¹, more investors are adopting opportunistic and debt strategies due to attractive returns amid higher interest rates and tighter financial market conditions. However, it's noteworthy that nearly half of respondents expressed concerns that the worsening economic outlook might limit their consideration of ESG (Environmental, Social, and Governance) criteria in investment decisions.

Investor sentiment is also influenced by rising interest rates, the potential for a recession, and reduced credit availability in 2023. Almost 60% of respondents anticipate purchasing less real estate, with 50% expecting to decrease their purchasing activity by more than 10%. Furthermore, 60% of investors exhibit hesitancy when it comes to selling assets in light of falling market pricing.

Despite these challenges, the most sought-after sectors both in Dallas-Fort Worth and nationally remain multifamily properties, particularly apartment complexes, and industrial assets, driven by modern logistics facilities in major markets. Investors are increasingly embracing opportunistic and distressed strategies to capitalize on market conditions, with expectations of price discounts of up to 30% across various sectors.

Therefore, the Dallas-Fort Worth area stands as a thriving and resilient hub for commercial real estate, offering a skilled workforce, strategic location, and a promising economic outlook. As businesses continue to seek opportunities in this dynamic metropolitan area, Dallas-Fort Worth remains a top choice for investment, expansion, and corporate relocation. Nevertheless, it's important to note that national trends indicate that investor sentiment is influenced by a range of economic factors, which may have a short-term impact on real estate investment activity.

Sources: Bureau of Labor Statistics, Dallas Regional Chamber¹, CBRE's 2023 U.S. Investor Intentions Survey ²