Congrats to YP’s Tyler Hemenway, Tanja McAleavey and Autumn Stallings for their participation in the BMW Dallas Marathon. This was Autumn’s sixth year to participate in the BMW Dallas Marathon and her first year to run the Ultra with a time of 7:26:47. Tanja and Tyler both ran in the half-marathon. Tanja finished 20th out of 3,114 women and fifth in her age group. Tyler finished seventh overall with a time of 1:12:14.
The BMW Dallas Marathon Charity Program brings together various local charities in Dallas and national non-profit entities that partner with the BMW Dallas Marathon organization to raise funds in support of various causes. Charity Program partners play a vital role in supporting the success of the BMW Dallas Marathon and related events by providing both runners and volunteers. Among the charities supported are: Muscular Dystrophy Association Team Momentum, Big Brothers Big Sisters, Leukemia & Lymphoma Society Team In Training, Back On My Feet, The Tom Joyner Foundation, and For The Love of the Lake
BMW Dallas Marathon info.
Happy Holidays! Check out our ad in today’s DFW Bisnow #TogetherWeCelebrate #YoungerPartners
Younger Partners is helping spread some holiday cheer! Team members collected toys, makeup kits and bicycles for Community Partners of Dallas, whose mission is to ensure safety, restore dignity & inspire hope for abused & neglected children served by Dallas County Child Protective Services. We hope these gifts fulfill every child’s holiday wishes. #NoChildForgotten #TogetherWeGive
Here’s the team going to pick up the bikes. Here’s more info on the toy drive.
Congrats to Younger Partners Property Services for moving up to No. 16 on the @DallasBizNews list of the Top Commercial Property Managers in the Metroplex. #TogetherWeGrow #propertymanagement #YoungerPartners?
Here’s the DBJ full list.
By Steve Triolet, Younger Partners Research Director
While co-working companies have dominated much of the headlines as far expansion in DFW, the financial industry (which includes insurance companies) have been taking down more office space in 2018. Companies like Allstate Insurance, Mr Cooper (formerly Nationstar Mortgage), New York Life and others have contributed to the majority of positive net absorption over recent quarters. On the opposite end, technology companies been very active as far as leasing activity but have been responsible for overall negative net absorption.
Much like we saw law firms squeezing more attorneys into less space over recent years, a similar trend has been impacting the technology industry, with tech companies downsizing their real estate footprints. NTT Data, Nokia, NetScout and other technology related companies have been moving into newer space and shedding excess square feet in older properties in the process. The attached chart shows the industry clusters and whether in aggregate they have been expanding or contracting in the DFW office market.
Great example of the quality tenant service at Park Central 3 & 4 as featured on WFAA. They featured one of the great security guards on site who sets out to remember a building of names. See the news clip here. Younger Partners handles the leasing for the property.
Security guard sets out to remember a building of names
If it’s your second day on the job and security is already calling you up by name, you probably made the wrong impression.
But inside one office tower in North Dallas, if the security guard doesn’t know your name, it’s just because he hasn’t met you yet.
“Good morning,” proclaimed Tim Esters, as he welcomed employees by name.
Tim has been guarding the front door in this building for the past three years. No one gets buy without a proper greeting.
“A smile is contagious,” said Tim.
At first, the proper greeting simply missed saying hello. Until, one day, someone responded, ‘Same to you, Tim.’
“If you call me by my name, I’d like to address you by your name,” Tim said.
And so began Tim’s mission to learn and remember as many names in the building as possible. Which, with 21 floors, seemed quite impossible.
“I know a few people from every floor,” he said.
Actually, the total number is much closer to a few thousand.
“I’m being kinda modest I guess,” Tim admitted with a laugh.
Of the nearly 3,000 people who walk through the door Tim knows more than 2,000 of them by name.
Tim says he only needs to hear your name once and he won’t forget it.
He claims there’s no secret to remembering 2,000 names. He’s only exclamation is that he simply loves people.
“Yep. Just like my family,” he said.
It’s obviously a very thoughtful thing to do, but folks hearsay Tim there’s a lot more than just remember their name.
“He makes you feel important,” said one employee.
“He makes you feel known and appreciated,” said another employee.
In America, we dislike each other because of politics or religion. But if Tim Esters shows us anything it’s that we have an ability to love one another even more.
“As a man told me a long time ago, it’s just nice to be nice. That’s just me. It’s just inside of me, to be nice to people.”
North Texas boasts bounty of big corporate campus sites
By Bill Hethcock – Staff Writer, Dallas Business Journal
If nothing else, the push to lure Amazon’s second headquarters shows there’s an abundance of real estate options in North Texas for the world’s biggest companies seeking to relocate or expand.
The Dallas Fort Worth region has capitalized on its low cost to do business, central location within the United States, and relative abundance of skilled workers to bring in corporate relocations on a regular basis — Toyota, FedEx, Liberty Mutual and State Farm to name a few. Texas is a right-to-work state, with no corporate or individual income tax and one of the lowest tax burdens in the country, and North Texas has plenty of potential headquarters and corporate campus sites, making the region one of the top destinations in the world for relocating or expanding companies.
North Texas now is trying to land Amazon’s second headquarters, or HQ2, and the 50,000 jobs expected to come with the $5 billion mega-project. Twenty North American metro areas are competing for the project. The Washington Post reported this morning that the e-commerce giant has held advanced discussions about establishing its second headquarters in Virginia’s Crystal City.
Dallas-Fort Worth officials have pitched more than 30 potential sites capable of accommodating the 8 million square feet of office space Amazon plans to occupy. The e-commerce giant’s campus is expected to span across 100 acres.
In the four primary DFW counties — Dallas, Denton, Collin and Tarrant — there are more than 50 separate sites currently being marketed for large corporate users, said Steve Triolet, research director at Dallas-based commercial real estate firm Younger Partners. Those sites can accommodate a minimum of 250,000 square feet of office space and in many cases, millions of square feet more.
Another analysis compiled by real estate firm JLL showed more than 600 land tracts in DFW that are over 100 acres and are intended for commercial development.
While that list captures a large share of the options, the DFW market is so expansive that it doesn’t catch everything, said Walt Bialas, JLL vice president and director of research in Dallas. For example, it does not include infill tracts such as Dallas Midtown, which is the site of the old Valley View Mall, a 100-plus acre piece of land that is prime for redevelopment, Bialas said.
“Our area has significant tracts scattered everywhere,” Bialas said. “DFW has grown over the decades (by) pushing out its perimeter.”
The abundance of sites across DFW is a plus for companies in search of a new home because it allows them to choose from a variety of quality locations and pick the site that fits their corporate values and needs, said Dan Bowman, executive director and CEO of the Allen Economic Development Corp.
“Corporations win when there are many quality sites to choose from,” Bowman said. “DFW and Collin County not only have many development sites, but they are differentiated and strategically located. These kind of choices create value for relocations.”
In Allen, for example, the focus has been on creating significant green space in developments like Watters Creek, The Strand and Monarch City, Bowman said. Walkability, trails, green space and a quality family environment set Allen apart as a corporate location, he said.
“North Texas has many available shovel-ready sites for corporate relocations, but what makes us unique is the differences among those sites,” Bowman said. “Various Collin County sites offer access to unique labor pools, different transportation corridors, school districts, etc.”
The multitude of cities in the DFW area means the competition is fierce between cities, EDCs, developers and commercial real estate brokers vying for projects. North Texas has 14 cities with a population of over 100,000, and 71 cities with 10,000 people or more.
“I think that having more options is always good when you are a buyer,” said Moody Younger, co-founder of Younger Partners. “The Dallas-Fort Worth Metroplex has more potential sites than most areas because of available land and also because we have many more proven developers than most markets.”
The Dallas Regional Chamber also believes that having plenty of options for companies to consider is one of North Texas’ strengths, said Darren Grubb, a spokesman for the organization.
“Our role at the Dallas Regional Chamber is to help companies, site consultants, brokers or developers navigate our region and understand all aspects of what we offer as a market,” he said. “That optionality of sites, and also our distinct communities, allows us to tailor project responses based on what they are trying to achieve – or present them with a possibility they had not considered.”
The number of potential sites and cities made it challenging for the regional chamber to compile DFW’s bid for Amazon’s second headquarters, said Mike Rosa, senior vice president of Economic Development for the DRC.
“You’re going to submit one bid, as requested by the company, for an area of 7.5 million people and all the powerful communities that we have,” he said. “This is not one large city with a lot of tiny burgs that surround it. We have 14 cities in this region with more than 100,000 people and their own ideas about their destiny and who they are as a city.”
The time and effort that local officials put into the HQ2 bid won’t be wasted if Amazon decides to go elsewhere, Rosa said. Information that North Texas leaders compiled on potential sites, as well as the region’s workforce, education, housing and other considerations, will be useful when luring other large companies, he said. Chasing Amazon has encouraged leaders to cooperate and to think big and boldly about economic development, he added.
Robert Grunnah, a land broker at Younger Partners, said DFW is “legendary” for its ability to attract new business, and availability of quality sites is just one piece of the puzzle.
“The area’s competing communities are responsive and hospitable with a myriad of welcoming political structures,” Grunnah said. ”Having the option of many available sites allows for a more than adequate economic analysis. There are few competing national markets that can offer our diverse business amenities and selection of financially hospitable locations.”
See article here.
Halloween is tomorrow and while some tricks will be had, our team had fun gathering treats for the North Texas Food Bank. Our property management team for DFW Business Center was flying high after being awarded the best Halloween costume, while team captain (and YP co-founder) Moody Younger’s team was awarded the envied title of “BEST CHILI” for our 2018 chili cook off! Congrats to all of our winners! #TrickorTreat #TogetherWeCook #TogetherWeContribute
The Younger Partners team is humbled to finish in the Top 10 of in the medium category of the Dallas Business Journal’s 2018 Best Places to Work. Thanks to our leadership & the entire team for making this a Best Place to Work. #dfwworks #bptw #teamwork #togetherwewin See the full rankings here.
The BPTW event was deemed “DFW’s biggest company picnic” at the Dr Pepper Ballpark Center in Frisco with colleagues and families invited to join in corn hole, giant Jenga, the hula hoop hustle, among other fun and games.
Volunteering together is a great teambuilding exercise and allows us to give back to the community simultaneously. The Younger Partners team spent Friday morning on the Bonton Farm harvesting vegetables, chopping & stacking wood, and feeding the goats. #togetherwegiveback #teambuilding
If you’d like to learn more about Bonton Farms, check out their website here.
The Bonton Farms mission statement: An agricultural intervention to restore lives, create jobs and ignite hopein the most forgotten and neglected neighborhoods for the most marginalized and vulnerable people.
Bonton is a South Dallas community where 85% of men have been to prison, poverty is rampant and jobs are scarce. Bonton is also a “Food Desert” where access to healthy foods is non-existent. Bonton Farms is on a mission to change that.
if you’d like to learn more about Bonton Farms, check out their website here.
DFW Business Center hosted a broker open house with great views of the project’s plethora of amenities, from a new fitness center with indoor and outdoor facilities to a tenant lounge and patio dining area, meeting space, a putting green, and more.
Is the office market in Uptown Dallas headed for a glut?
By Steve Brown, Real Estate Editor for the Dallas Morning News
A big new office lease in Dallas’ Uptown is good news for the booming office district just north of downtown.
Data center firm CyrusOne rented 50,000 square feet in the new Harwood No. 10 tower under construction near the entrance to the Dallas North Tollway. The tech company, the first major tenant announced for the 22-story high-rise scheduled to open this winter, is growing its headquarters by about 60 percent in a move from another Uptown building.
The lease may help calm jitters about the amount of new office space on the way for Uptown.
While the central Dallas district doesn’t have the largest share of new office development underway in North Texas, buildings there are the most expensive, with rents topping $50 per square foot.
Most of the office construction these days is in the mid-cities, Las Colinas and the Legacy/Frisco market, but three new office projects going up in Uptown are the most visible and costly. And all of them are speculative, multi-tenant buildings.
Areawide about 75 percent of office projects being built already have tenants lined up — in Uptown, about half of the new space is accounted for.
“Only Uptown is likely to see any significant softening due to new construction in the second half of 2018,” said Younger Partners’ Steve Triolet. “Keep in mind, Uptown is not a large submarket — current total inventory is 13.9 million square feet — but it has 1.2 million square feet scheduled for completion later this year.”
The new office space is coming in Trammell Crow Co.’s Park District project on Pearl Street, in the Union on Cedar Springs Road and the Harwood’s No. 10 tower.
“These three Uptown projects have a combined 654,054 square feet of space that is unaccounted for,” Triolet said.
Of course the developers in Uptown have reason to feel optimistic. Crescent Real Estate hit a home run with its $225 million McKinney & Olive office tower, which opened in 2016 with record rents and almost full occupancy.
And Lincoln Property Co.’s new 1900 Pearl high-rise on the edge of Uptown at Pearl Street and Woodall Rodgers Freeway is almost 90 percent full just months after the opening.
“Most buildings are doing pretty well right now in their leasing velocity,” said JLL’s Greg Biggs. “I don’t think it’s time to worry yet.
“There is still a lot of activity down there — both from within the market and outside the market,” Biggs said. “We get calls from companies wanting to open new offices in Uptown.”
Of course, those same companies are being wooed by downtown Dallas skyscrapers that are getting major remodels to remain competitive. And those downtown buildings are rental rate bargains compared with Uptown’s pricey properties.
“For the value, they are very competitive compared to new construction,” Biggs said. “They are going to be considered 90 percent of the time with the Uptown buildings, especially with the retrofits that the downtown buildings have gone through.”
Uptown law firms Bell Nunnally & Martin and Alston & Bird recently decided to relocate from Uptown to downtown.
“Uptown also recently lost Guidestone, which vacated roughly 200,000 square feet at 2401 Cedar Springs and moved to Pinnacle Tower” in Farmers Branch, Triolet said of the financial firm. “Taking all this into account, watch for increased concessions in Uptown in the near term as the submarket tries to fill these new speculative projects.”
Link to the article here.
Younger Partners Research Director Steve Triolet took a long look at how much asking rates increased on a submarket level over the past five years (1Q13 vs 1Q18). It probably won’t come as much of surprise that Preston Center and Uptown have seen the biggest increases over that time period, which has in turn pushed rates in Central Expressway (Central often attracts tenants priced out of Uptown and Preston Center), but some of the other submarket trends are a little surprising. LBJ Freeway has seen a good push in rates, but this is partially due to the freeway expansion project wrapping up a couple of years ago.
Meanwhile, the Fort Worth CBD has struggled over the past four years largely due to the energy price collapse that started in mid-2014. While, oil prices have been recovering some in recent months, any rate growth in the Fort Worth CBD in the near term is unlikely as the XTO division of Exxon Mobile is leaving several large blocks of space in Fort Worth this summer and moving 1,200 jobs to Houston.
Land sales, prices soar north of Dallas-Fort Worth as race to Red River hastens
Land sales north of Dallas-Fort Worth are sizzling, with near-term developers and long-term speculators snatching large tracts in the path of projected growth as DFW continues its Manifest Destiny march to the Red River.
Hunt Realty Investments Inc., for example, recently bought a property known as Headquarters Ranch, a more than 2,500-acre site on Frisco’s northern edge and the largest contiguous land assemblage in the city. Hunt Realty will master-develop a massive, mixed-use project alongside the Karahan Cos., led by Fehmi Karahan, who was the driving force behind much of Plano’s Legacy area.
Further north, Younger Partners’ John St. Clair brokered the sale of more than 900 acres to an undisclosed family that has owned land around Texas for generations. The investors bought a 634-acre farm in Howe, about 55 miles north of Dallas, as well as a 371-acre parcel in Sherman, about 65 miles north of Dallas.
The Dallas Business Journal talked with Robert Grunnah, the leader of Dallas-based Younger Partners’ land investments division, to get a sense of who’s selling, who’s buying, for how much, and where. This interview with with Grunnah, who has 40-plus years of experience in the DFW land business, has been edited for brevity and clarity.
What trends are you seeing in terms of land sales to the north? Our long-term history has been to focus on the different cycles that have occurred and the different product types. Land has traditionally been slower (to rebound) in most of the recovery cycles than virtually any other asset. The reason is because it’s not income-producing.
How has this recovery cycle progressed? This has been one of the longest recovery cycles we’ve ever seen. Certainly of the four cycles I’ve experienced, it’s the longest by two or three years. Land has been much slower to recover. We started focusing in the 2009-2011 era on land up north, in the area west of Sherman-Denison and south of Lake Texoma. Land was trading in the $2,000 to $3,000 per acre price range for plain, raw land. It was not very active. There weren’t many trades. Most people were focused on income-producing properties for investment as opposed to land. It stagnated there up until about three or four years ago. But over the last 12 to 18 months, we’ve seen a distinct acceleration of values.
Why? I think it has a lot to do with the current income-producing or vertical asset market. We’re pricing it at two, three or four times replacement cost. Momentum for investment in those types of properties has finally worn thin. The competition for real estate investments in Dallas-Fort Worth has gotten so competitive and pricing has gotten egregiously high for vertical assets. People have decided that if they’ve got to park their money in real estate investment, land is the best opportunity.
So people are turning to raw land? Investment tracts are generally considered to be anything over 100 acres. This is for unimproved investment land that is not tied to any infrastructure nor will it be tied to any infrastructure in the near term. It’s vacant land that is in the path of growth, but is not expected to be absorbed for development anytime in the near term. You take the average 100-acre tract, and you go into the speculative marketplace for land of that nature, and you go north of Celina, you have Gunter, Dorchester, essentially Sherman and Denison. If you come back south again, you come back into Howe, Van Alstyne and Melissa and that area north. That’s really the speculative marketplace.
Why is DFW growing more rapidly northward than other directions? The natural growth pattern for most major cities in the United States is north. For the most part, Dallas-Fort Worth has grown north, and that’s partly because of the availability of sanitary sewer and water. When we first started selling land north of Fort Worth to Mr. Perot in 1985, ’86, ’87, it looked no different than north of Celina looks today. Now, look at what has occurred. That was created first because Mr. Perot had the vision and the resources to create the activity, and secondly because infrastructure was available. The city of Fort Worth jumped out and grabbed that.
What’s in high demand to the north? The demand north of Celina is for larger tracts. If you go into Cooke County, out of Grayson County, you’ve got some beautiful estates — horse farms and such — and those people will utilize it for secondary use, agricultural use, until there is demand pressure.
What trends are you seeing in pricing? There’s no quantitative method to value a piece of raw, speculative land like the 100 acres I’m talking about. What is it worth? Does it have impounded water on it? If yes, that’s more valuable. Does it have trees and creeks on it? If so, that’s more valuable. It’s priced more like a commodity. We’ve seen pure, speculative investment land go from $2,000 to $3,000 per acre five years ago to the $10,000 to $12,000 per acre range today. And there’s nothing that has changed. There’s no development on the property line. There’s not road going through the middle of it. There’s none of that. It’s just commodity-based pricing. It’s what people see as an investment. No one has ever lost money at any price level on buying 100 acres north of Celina, west of U.S. 75 and east of Interstate 35 at any price. All they have to do is be able to carry the land through the cycles, and at some point the cycle will exceed what they paid.
Even if they’re highly leveraged? A lot of people have gone broke up there because they’ve leveraged it and they were forced to pay debt service. One of the greatest advantages of land ownership today is that you have agricultural exemption. You can carry that land for nothing. And if you buy a nice enough piece of land, you can put cows on it, get your ag exemption, and make money. It’s income-producing land — a rare thing.
Can you tell me who made this latest purchase of 1,000 acres in Sherman and Howe? I can’t tell you who it is, but it’s a family that traces their roots in Texas back four or five generations. They have bought land in the path of growth for three or four of those generations. They buy it, they put cows on it, they hold it and wait until the market changes and growth gets to it. Then they sell it for a significantly higher price and go out further and buy more. It’s a classic investment strategy that doesn’t fail. But again, in order to make it profitable, you have to be in a position that you can carry it.You cannot be in a leveraged position or you’ll lose it. That’s what happened to so many people in the late ’80s and the 2008, ’09, 2010 era.
What are your thoughts on Hunt Realty Investments’ purchase of the Headquarters Ranch property in Frisco? It stands out as such a significant acquisition that you really can’t apply the standard investment procedures in that deal. They’re going to need to develop that land in order to make it work. I admire them because they’re going in at the peak of a market. But with the financial resources that the investor pool has, they can wait that out two more cycles, and they’ll have no concerns. They’ll do extremely well because of where it’s located. With the job growth and the job centers that are moving in that direction, it’s an absolute home run. It was a brilliant move.
Where is DFW’s northern frontier? It’s creeping up there. It’s further north than we’ve seen it. We’re north of U.S. 82 now, which is north of Denison-Sherman.
How is the extension of the Dallas North Tollway progressing? Everybody is still speculating on the extension of the toll road, and it’s just creeping along at a snail’s pace. But it will ultimately go all the way up to U.S. 82. In my lifetime, no. In your lifetime, probably not. But when you look at what people are paying for land today — $15 to $20 per square foot at the intersection of the toll road and 380, that’s wealth created by the toll road.
You can see the story on the DBJ website here.
CRE Opinion: Extremes of the Investment Spectrum
The number of office properties being marketed for sale in Dallas-Fort Wort is up, especially in types of commercial properties.
In early 2018, Younger Partners noticed a surge in office properties that have been marketed for sale, far above the norm we’ve seen over the past several years. Part of this increase in properties for sale is certainly tied to interest rates and the anticipated movement in cap rates that are expected to follow. In early 2018, there was more than 11 million square feet of office properties being marketed for sale. Since then, the number and square feet of office properties available for sale has steadily increased and now is more than 17 million square feet.
The thing is, the most active parts of the office investment market in DFW seem to be at either end of the risk spectrum, with large built-to-suit investments like State Farm’s Richardson campus that sold in late 2016 as a sale-lease back for $400 per square foot. Institutional investors prefer core, Class A properties and the large built-to-suits are generally very low risk. In fact, most are single tenant assets with 10 to 15-year leases. Some of the current inventory is similar to this, like AT&T’s Whitacre Tower, in the Dallas core, which is currently for sale.
The other end of the spectrum are the high vacancy properties, which are commonly referred to as value-add. These vacated properties (which, in many cases, are the old locations for new built-to-suit projects) can be an attractive investment for investors with a higher appetite for risk.
In late 2017, International Plaza I and II were vacated by JPMorgan Chase and Fannie Mae (both tenants moved into new built-to-suit properties in the Legacy area) and the two properties were then sold in early 2018 for $152 per square foot. These two adjacent properties are currently one of the largest contiguous blocks of Class A space in DFW. Sometimes the vacated properties go through distressed sales, where the banks take back possession or they sale at foreclosure auction. The former Zale Corp. property at 901 Walnut Hill Lane in Irving went through foreclosure in October 2017.
Outside of the extremes, there are more investment grade office options currently available in DFW than we’ve seen in well over a decade. With so much inventory available, sales transaction volume will either be delayed due to lack of buyers, or a record number of office properties will trade hands in 2018. Currently the market is already on pace to surpass 2016, which was the highest year this business cycle.
Steve Triolet is the research director at Younger Partners.
You can see the article here.
By Catie Dixon, Bisnow
DFW loves new.
Younger Partners Research Director Steve Triolet delved into the impact of Dallas’ huge office pipeline on the market and found that deliveries — 20.1M SF of Class-A and 3.8M SF of Class-B office has come online since 2013 — are shaping the city in a few ways.
1) Rent Explosion
The delta between Class-A and Class-B office rents is widening as new supply sets new bars for pricing. Historically, there was a $4 to $5 gap per square foot between what tenants paid for a top-tier building and a Class-B one, but that has been increasing over the past five years, Triolet said. The delta is now $8/SF.
2) New-Build Is Low-Risk, But Could Hurt Everyone Else
The best performing submarkets are typically the ones with the newest buildings, and those properties are almost guaranteed to do well. “Even in an overbuilding situation, it’s rare for the newest buildings to go into distress,” Triolet said. “The properties that struggle the most at almost any point in the business cycle are the older, outdated properties.” Even with a growing discount on pricing, these properties are more often struggling to attract tenants.
3) Time On Market Is Shrinking, Which Is Unexpected
The overall vacancy rate in DFW office has been rising for three years. Typically, the average time to lease space is directly correlated to vacancy — as competition increases, so does the amount of time it takes to fill a building. Not this time.
The average time on market has been trending downward for the past five years and particularly the last three. Basically, tenants are quickly jumping on new space, and there has been more new space to jump to recently. DFW has been absorbing a strong 5M SF per year for about five years, making it one of the most active leasing markets in the U.S.
No surprise: Time on market is much longer for older properties than new or newly renovated ones.
“The underlining message is old, unimproved space tends to languish on the market, while there continues to be a healthy appetite for higher-quality space, especially new and improved office space,” Triolet said.
CoStar article by Candace Carlisle
New Office Buildings Delivering Low Vacancy Rates in Dallas-Fort Worth: The Areas With the Lowest Vacancies Also have the Newest Office Options
Developers putting new office buildings on the ground in Dallas-Fort Worth are also helping boost occupancy rates in key neighborhoods as tenants flock to the younger generation properties.
It’s no accident some of North Texas’ submarkets with the lowest vacancy rates, including Far North Dallas, Uptown, Richardson and Las Colinas, have all delivered buildings in this real estate cycle, said Steve Triolet, research director for Dallas-based Younger Partners. “Tenants really prefer new product over old product,” Triolet told Costar News. “If you look at the 1980s vintage of buildings from the heyday of construction in Dallas, most of those skyscrapers are 35 years old and, to stay competitive, they have to renovate.”
Those skyscrapers in downtown Dallas, including Trammell Crow Center, Bank of America Plaza, Fountain Place, Ross Tower and Chase Tower, have all recently undergone or are undergoing massive multimillion-dollar upgrades. The facelifts help those buildings compete with new buildings coming to the market, including PwC Tower and The Union.
That is exactly what happened in the case of downtown law firm Vinson & Elkins, which had originally planned to relocate its Dallas office to The Union. But construction delays led to the law firm staying put at Trammell Crow Center after the downtown skyscraper unveiled a massive renovation and adjacent development to compliment the high-rise office building.
And the suburbs around Dallas are also following suit, with Far North Dallas in Plano’s Legacy Business Park and northward on the Dallas North Tollway to Frisco boasting one of the region’s submarkets with the most construction — and one of the lowest vacancy rates of 15 percent, said Triolet, who has been studying the tenant movement in North Texas for the last decade.
“We are seeing the vacancy rates get chronically larger when it comes to older buildings,” he added.
Older, build-to-suit are often the most difficult to fill, Triolet said, with few companies seeking to lease or buy the aging office stock designed specifically for an early 1980s business.
This is a trend longtime Dallas leader Moody Younger has seen for some time.
“The new office buildings are not for everyone, but Dallas does like bright, shiny new stuff more so than older buildings,” Younger told CoStar News. “In Dallas, we are also still able to provide new buildings at a reasonable cost.”
For tenants seeking new digs, Younger said they want a combination of amenities in a new building coupled with the walkable location coming with new buildings being delivered today in North Texas.
“Well-located properties with amenities are leasing up and I don’t see that trend stopping,” he said. “This is what is hot right now and it’s here to stay for the foreseeable future.”
AIA Dallas Columns Magazine’s spring issue features an article written by Younger Partners’ communications manager Tonie Auer and includes broker Robert Grunnah as one of the expert sources on the ups and downs of vacancy in Downtown Dallas over the years. You can view the article here.
If you take a look at the history of downtown Dallas vacancy rates, there is a story behind each wave of ups and downs reaching back to the 1950s. And it all leads to the recent revitalization that we are seeing today.
In the 1950s and 1960s, downtown Dallas was not only the central business hub of the city, it was also the historic retail and entertainment core, says Kourtny Garrett, Downtown Dallas Inc. president and CEO.
“You had the streetcars running and Theater Row,” she says. “It was a destination for entertainment, shopping, as well as business.”
“The 1950s and ’60s were the heyday downtown. There was both retail vitality and office vitality,” says GFF Chairman Larry Good, FAIA. “I have fabulous memories of taking a bus downtown and seeing all of the department stores from Neiman Marcus to Sanger’s, James K. Wilson, and all the great retailers. The movies were all open at the Majestic, the Palace, the Capri, the Melba. Downtown was humming.”
But the abundance of highway construction between the 1960s and 1980s contributed to the flight of retail and office to the suburbs from the central core, Garrett says.
RISE OF THE SKYSCRAPERS
By the late 1970s throughout the 1980s, office towers sprouted and overbuilding became a Texas tradition. “That’s when the vacancy piece of the puzzle became a problem,” Garrett says.
Greg Biggs, JLL managing director for tenant representation, says the millions of square feet of skyscrapers developed in downtown Dallas in the 1980s changed two things. First, there was more space available than tenants to occupy it. Second, developers gave building architects free rein to design massive projects that were more about making a statement of prominence.
“Back then, employees would go to work for a big firm and work their way up to a partnership and the corner office and be there for years. It was a time when ‘who the employer was’ made a statement. As times progressed and the workplace changed, employees began to dictate how the space was used. Employers are in a daily battle to retain and recruit the best employees. Employees now enter their career and if they don’t like where they are for whatever reason, they’ll leave and go somewhere else or work there for a while and start their own business.
“That transition has driven much of what has happened in downtown Dallas office occupancy. Many of the businesses that used to be in downtown have migrated to the suburbs and created offices that are more efficient and better suit their employee needs,” Biggs says.
On the other hand, Garrett says, “Overbuilding, combined with the market crash of the 1980s and the consolidation of retail nationally, led to the sidewalks rolling up at 5 p.m. We had a quiet downtown except for the 9-to-5 folks. Downtown was now automobile-driven with no vibrancy. There were some discount stores left at ground level and a couple of restaurants that came in, but no reason for people to really go out on the street.”
Downtown became an office park by the 1970s as the retailers one by one closed their doors in favor of more successful suburban locations, Good says. The big banks, law firms, accountants and architects were enjoying “officing” in downtown, and the banks each built their monuments, he says.
“There were some pretty impressive high-rise office buildings that hit a crescendo around 1978 to 1988,” Good recalls. “The last one to be built was 2200 Ross [Texas Commerce Bank tower, now Chase Bank tower].”
VACANCY MOVES IN
Younger Partners broker Robert Grunnah says that in the era of new construction in the early 1970s and 1980s, vacancy started to rise, especially in the Class B and Class C properties. When developer Trammell Crow built Trammell Crow Center, the extended negative cycle began in earnest.
“Comerica and the Bank of America buildings were added, among others, and they all struggled; Fountain Place as well,” Grunnah says. “After that boom of construction in the 1980s, there was no new construction downtown until projects in the Arts District. Office rents in downtown were flat for 20 to 25 years. With the success in the Arts District, former Class B buildings became C, and then vacant, and then no one wanted to lease them.”
Grunnah says the downtown buildings languished through the late 1980s and early 1990s. The collapse of the savings and loan industry hit hard, followed by the RTC debacle that resulted in many building owners losing their properties or even giving them back. The Resolution Trust Corp., a U.S. government-owned asset management company, was established in 1989 to liquidate primarily real estate-related assets such as mortgage loans held by the savings and loans.
“The downtown Class B and C buildings remained vacant, with most essentially owned by former lenders waiting for something to happen,” Grunnah says. “All of these buildings had environmental issues like asbestos. And with no demand for office users, they couldn’t afford to remodel them, so they sat empty.”
Good says the early 1990s saw the first wave of residential conversions of the most beautiful of the empty office towers. But while it was a nice trend, it was slow and didn’t have legs because many of the other middle-age office buildings were “hard to love” and not necessarily appealing.
“By the late ’90s, downtown had more than 40 vacant buildings. All the department stores had closed with the exception of Neiman Marcus. Theater Row was shuttered. Then came the city’s first TIF (Tax Increment Financing District, a publicly funded subsidy for redevelopment, infrastructure and other community improvement projects), and it was a pivotal point in the city’s move to revamp downtown,” Garrett says.
The City Center TIF, launched in 1996 with updates added years later, created a little spark of interest from a couple of out-of-market developers who saw the potential, she says.
“That’s when we saw the introduction of residential into the picture. There’s no single thing you can point to for the decline and the revitalization of downtown,” Garrett says. “But, if you pare the success down, it was because of the introduction of residential, which drives demand for retail, public space, and more services. Those initial TIF investments turned some of those vacant buildings into apartments.”
The inspiration to make big changes downtown followed the disappointing loss of the Boeing Corp.’s decision to pick Chicago over Dallas for its new headquarters, Good says.
“They told us we lost that opportunity because we had dead downtown streets, vacant retail, no street life, and that downtown was not appealing. That lit a fire under the mayor and City Council and Downtown Dallas Inc.,” Good recalls. “Everyone pulled together to address creating green space, getting people out of the tunnels and back on the street, and becoming more dedicated to converting some of those old office buildings to residential use. In addition to the City Center TIF was the creation of the Downtown Connection TIF.
“Those supplied some gap money to help make some of the conversions possible at the Davis, Dallas Power and Light building, Lone Star Gas Lofts, and the Mercantile Building. That era of buildings became converted for residential instead of office and very importantly took that vacancy off the books and replaced with new residential occupancy,” Good says.
The early 2000s was the turnaround time when city leaders “really got our act together, made plans, had public sector support and began to see the reinvestment downtown,” Good adds.
Until residential developers started rehabbing downtown towers in the early 2000s, there was only one downtown high-rise condo and it struggled, Grunnah says. It has since been remodeled and is doing well today, he says. During the RTC days, Grunnah had three offers on a pool of RTC-marketed buildings, but many of the offers requested that the Davis Building be removed from the offering. Ultimately, a buyer took the title for no cost and, after another pair of trades, the Davis Building is now a highly successful residential building, he says.
The market for residential properties increased, and many buildings have now been converted to multifamily because the buildings had low ceiling heights and inefficient office floor plates or they needed new HVAC, which all prevented the office buildings from leasing at competitive rates, Grunnah says.
RESIDENTIAL AND REVIVAL
Smart developers have taken empty office buildings and converted them to residential apartments or condominiums with views and other amenities, Biggs says.
“It’s cooler and closer to the heartbeat of the inner city, and that’s a huge comeback from the 1980s and the ’90s with all of the giant vacancy numbers. Empty buildings found a purpose, and their vacancy was taken off the office market,” Biggs adds.
The demand for urban residential that began around 2000 hasn’t slacked. Today, downtown residential properties hover around 94 percent occupancy on average, Garrett says. With no overbuilding in the market, that occupancy rate is usually attained within six months of opening.
The historic Wilson building and the Davis Building were among the first office-to-residential conversions, and the Magnolia Oil building was transformed into the hotel we know today, she adds. The second wave included the Davis, Dallas Power & Light, and Mosaic projects, Good says.
The residential population has jumped dramatically since the mid-1990s. In 1996, downtown had about 200 residents. Today, more than 11,000 people live downtown. Add in the Cedars, Deep Ellum, and other neighborhoods around the urban core, and that number increases to around 50,000 residents.
After the explosion in residential, next came the parks, including Main Street Garden, Belo Garden and ultimately Klyde Warren Park. Walkability became the buzz word, Garrett says.
“A trend we started seeing around five years ago with Bryan Tower and 2100 Ross (the old San Jacinto tower) among others along the Ross Avenue corridor—which is congruent with the new construction trajectory going on in Uptown—is building owners realizing that the older office stock needs to be competitive with places like Uptown or Legacy,” she says. “They have to be stepping up to meet the demands from the recruitment and retention standpoints.”
There is much more renovation and adaptive reuse occurring in downtown office buildings, such as the conversion of One Main Place to a Westin Hotel and residential tower.
“It’s a recent phenomenon, but I believe we will continue to see buildings do that,” Garrett says. “I think creative office is also huge trend; I believe we will see a lot more creative and innovation industry coming into downtown.”
AT STREET LEVEL
Garrett expects more in-fill development: “We are entering an era of new construction; we will see parking lots absorbed with mixed-use, and they’ll all better connect our vibrant nodes like the Farmers Market, Main Street, the West End, and the Arts District.”
At the top of the Downtown Dallas Inc. priority list is more attention to the street level. It’s been done very intentionally with plans for traffic calming , bike lanes, and more complete streets. Traffic calming uses physical design and other measures to improve safety for motorists, pedestrians, and cyclists. It aims to encourage safer, more responsible driving and potentially reduce traffic flow.
“Livability is a word that comes into play significantly here,” Garrett says. “Infill development will be complemented by more services, schools, grocery stores, and the elements that create a true livable place.”
“We now have enough population downtown that retail is practical again,” Good says. “We have the daytime office population and the full-time residents and nighttime population, along with visitors for sports and cultural events. Retail makes sense again. We are seeing the storefronts reactivated, and we’re already seeing grocery stores nibbling around edge of downtown.”
Grunnah believes the biggest problem for downtown—unlike Frisco, Plano or Legacy—is providing affordable housing for back-office employees, who now fight traffic on commutes and face expensive parking. “I see downtown becoming a place for Class A corporate locations that do not require high-density employment,” Grunnah says.
Dallas has one advantage over many of its suburban competitors—the DART mass transit system. As fuel prices increase, more people will turn to mass transit, Biggs says.
“Dallas is in a great position to continue its diversified growth,” he says. “Downtown Dallas has a number of influential supporters who are going to continue to do what they can to improve the attractiveness of downtown.”
Long-term, Good sees a rosy picture.
“The millennials absolutely love the center city. They want to be in the heart of a metropolitan area where you can walk. And they’re becoming the decision-makers and the leaders of their companies. They’re making the decisions of where they office and live,” Good says.
Tonie Auer is communications manager at Younger Partners.
By Bill Hethcock, Dallas Business Journal
Two schools of thought prevail on the impact of Amazon’s second headquarters search on other major corporate relocations and expansions scouting Dallas-Fort Worth and the rest of the United States.
One school posits that Dallas and many of the other 19 metro areas still in the running for Amazon’s HQ2 are experiencing a “halo effect,” or an attraction from other businesses due to the hype surrounding the Seattle e-commerce juggernaut’s interest. If a city is good enough for Amazon’s consideration, this line of reasoning goes, it’s good enough for ours.
The other school counters that companies considering HQ2 finalist cities are hitting the slow-mo or pause button on their own searches until after Amazon names its final HQ2 resting place. Cities on Amazon’s list have the equivalent of devil’s horns that scare away companies worried that the 50,000-job project will soak up available IT talent, drive up salaries and cause housing costs to soar to levels their own employees couldn’t afford.
King White, CEO of Dallas-based Site Selection Group, falls in the second camp.
With the economy going strong, site selection activity has been strong across the U.S. for high-end corporate campus projects, White said. In addition to Amazon, some of the names on the list include Apple, Snapchat, JPMorgan Chase, Google, Infosys, State Farm, Liberty Mutual and more.
The quest for more labor is the top factor behind most of the largest site selection searches, White said. Most companies have gotten so big at their headquarters location that they are tapping out their existing labor markets, he said.
Apple and Amazon, for example, are both searching for new labor markets after outgrowing their headquarters labor markets. When leaving high cost labor markets like San Francisco and Seattle, these companies often can reduce their labor costs by 20 to 30 percent, White said.
“The impact of these mega-deals on your site selection decisions is critical,” White wrote in a recent blog to his company’s clients. “Most of these projects are branded employers paying premium wages, so they can be an employer of choice. Just think of the impact of Amazon landing in your city as they ramp up to 50,000 employees. Your employee attrition and labor cost for quality talent are going to skyrocket.”
A spokesman for the Dallas Regional Chamber, which coordinated the DFW market’s combined pitch for HQ2, said chamber executives haven’t noticed an increase or decrease in interest in DFW since being placed on Amazon’s list.
“The ‘halo’ the DFW Region enjoys comes from the fact that this market continues to be one of the most dynamic economies in the country and a homing beacon for companies and jobs,” the chamber’s Darren Grubb wrote in response to questions from the Dallas Business Journal. “Since 2010, more than 125 companies have relocated here, hundreds of other local businesses have grown and expanded, and more than 100,000 new jobs are created every year.”
Steve Triolet, research director for Dallas-based commercial real estate firm Younger Partners, said the company hasn’t seen evidence of a halo or horns effect in regard to relocations to North Texas.
With few exceptions, DFW is considered for almost all national corporate relocation searches because of the lack of a corporate income tax, affordable office rents, relatively affordable residential housing, lack of a personal state income tax and other factors, Triolet said.
”The biggest concern has been in regard to potential labor shortages, but this generally is only impactful on certain job roles — usually on either extreme end of the pay spectrum,” he said.
Those include low-paying jobs like call centers, or jobs where advanced scientific or Ph.Ds are required, Triolet said.
“DFW has a large enough labor pool to accommodate most industries and companies, and migration data points to DFW being able to attract whatever talent shortfalls that might emerge,” he said. “People will move for good jobs.”
Amazon sent a letter this month to Dallas and the other 19 finalists to say it’s still weighing its decision. Grubb said the chamber received the letter. He said Amazon has not provided a timetable for its decision other than to say it will announce the winner sometime in 2018.