By Steve Triolet, Younger Partners Research Director
Near the beginning of the year, I shared some info from Kastle Systems on office usage for the top 10 office markets across the country. Back then and now, DFW remains the top market for office usage (office workers being physically back in the office on at least a hybrid model).
To date, the usage numbers have not moved much this year, but several recent announcements (Microsoft, Google, Morgan Stanley, PwC, Fannie Mae, FDIC) all point toward improvement over the next few months, with post-Labor Day being the most common soft return date for several large corporations. This date seems to be the consistence because of the start of a new school year and the end of summer.
By Steve Triolet, Younger Partners Director of Research
A few times a year I show where the highest concentrations of large blocks of space are. In the second chart below, there is an updated breakdown of the 203 Big Blocks of space currently available by size category and submarket. Outside of that update, I wanted to take a look at the increase in all sizes of space (not just the big blocks of space).
What surprised me most when I analyzed the data is the increase in space was not just in the big blocks of space, but also all size categories. Since the first quarter of 2019, the amount of space being marketed is up 20%. While sublease is a large component of this increase over the past year, sublease space only accounts for roughly 14% of all the available amount of space out in the market.
February’s Younger Partners spotlight is our 2020 Top Producer, Trae Anderson. Trae has been with Younger Partners since its inception almost nine years ago and is a Principal with the company. Trae is an avid golfer, history buff, crossword puzzle lover, and a trivia aficionado.
He and his wife of eight years, Rachel, have an almost 2-year-old son, Thomas, and a 10-year-old lab, Finley. The OU alum (and superfan) was also a 2013 recipient of the University of Oklahoma Regents’ Alumni Awards for service to the university. Little known Trae fact: he won the 1989 National Limbo Championship in Chicago. Thank you for all of your contributions to the team!
By Steve Triolet, Younger Partners Director of Research
While most numbers like vacancy, net absorption and asking rates that are reported in our quarterly reports give a current pulse on the market fundamentals, there are a few that can be leading indicators of where the market is heading in the quarters ahead. One of those is the availability rate and its relationship with the total vacancy rate. If spread between the availability rate and the vacancy rate is narrowing that means that there is less of pipeline of space coming to the market or as we’ve seen in 2020 and 2021 (to-date) the availability rate for DFW office market has been steadily climbing, outpacing the rising vacancy rate. This indicates negative net absorption ahead, along with softer fundamentals like a higher total vacancy rate.
The rapid rise in the DFW office availability over the past year has been due to a combination of direct and sublease space. While sublease has been gaining more attention in the news, the rise in direct space available (mainly due to new construction) has far outpaced the rise in sublease space. Available sublease space and direct space have increased by roughly 3.5 million and 6 million square feet, respectively over the past year.
Congrats to the YP Top Brokers for 2020! Top Producers are Trae Anderson, Sean Dalton, Scot Farber, Jack Gail, Tom Grunnah, David Hinson, Ben McCutchin, John St. Clair and Tom Strohbehn. A new award this year goes to the broker who generated the most revenue by working with other YP brokers. Congrats to Michael Ytem for being our Teammate of the Year. We can’t wait to see what 2021 brings for our great team.
Included in the list for office leasing are Trae Anderson, Kathy Permenter and Sean Dalton. For land and commercial property sales are Scot Farber, Tom Strohbehn, Tom Grunnah, David Hinson, Ben McCutchin and John St. Clair.
See the full list at: https://bit.ly/37PyBKZ
By Younger Partners Research Director Steve Triolet
With roughly 9.5 million square feet of office sublease space currently available, it’s important to take a look at how long the lease terms are for the various sublease spaces. Traditionally, subleases with 2 years or less of term left are very difficult to lease unless a direct deal is also worked out (due to the high cost of moving into a new space for a short term lease). As of February 2021, roughly 20% of the current subleases being marketed have lease terms of 2 years or less, making them likely to roll to direct vacant space before a sublessor is found.
Among the leases with longer terms (5 years plus), several of these are concentrated in newly constructed office properties (Uber 115,995 SF, Liberty Mutual 357,500 SF, DXC 100,267 SF and HPE 71,296 SF, among others).
Playmakers Talk Show Guest for the February 5th edition of PlayMakers Talk Show: Kathy Permenter, Co-Founding Partner, Younger Partners
Kathy Permenter serves as co-managing partner and has a proven track record of creating value for her clients. Kathy is responsible for leasing select assignments and the overall performance of the property leasing team. She attributes her real estate success to her CPA background, years of transaction experience, and a passion to exceed her client’s expectations.
Younger Partners is a full-service boutique commercial real estate firm providing investment, leasing, and management services to investors and tenants in the Dallas/Fort Worth region. Since its founding in April 2012, Younger Partners has grown from its two original partners to over 90 employees responsible for eight million square feet of properties in the Dallas/Fort Worth market.
Kathy has a passion for serving clients. She creates a team atmosphere and has tremendous energy that she brings to everything she does. She’s one of the heavy hitters in DFW Commercial Real Estate and has accomplished that with tenacity and grit.
Younger Partners Investments (YPI) completed its first retail acquisition: Heath Town Center, a 77,669-square-foot grocery-anchored retail center at FM 549 and Laurence Drive in Heath. YPI is Younger Partners’ newest platform designed to acquire retail properties. YPI was launched in July 2020 to target retail properties from lifestyle to neighborhood centers throughout the Dallas-Fort Worth area.
The newly built shopping center is anchored by a top-performing Tom Thumb grocery store alongside its 12-pump fuel station and in-store Starbucks. The property’s occupancy is 98 percent with one small vacancy of 1,827 rentable square feet. Younger Partners will handle the property management and leasing of the property.
Younger Partners’ Micah Ashford, Moody Younger and Kathy Permenter represented YPI in the acquisition. JLL’s Adam Howells represented the seller, Malouf Interests, Inc. Financing arranged by Adam Mengacci of Hamilton Realty Finance. Terms of the deal were undisclosed.
“This is a great property to launch our new platform,” says Micah Ashford, who leads YPI’s efforts. “This high-performing Tom Thumb provides consistent traffic patterns to the property and serves as an excellent anchor for the shop tenants, who benefit from maximum exposure. This location is incredible as the City of Heath has seen population growth of 40 percent over the last 10 years.”
Demand has increased at the intersection of FM 549 and Laurence Drive, which was recently expanded. The property is also located immediately adjacent to two heavy daytime traffic generators, Rockwall-Heath High School to the north and Amy Park Elementary School to the south, Ashford adds.
“We feel like retail is one of the most disrupted sectors of commercial real estate,” says Younger Partners Co-Founder and YPI Partner Moody Younger. “While we can relate to the tough times COVID-19 has created, we are confident in the resilience of Texas and we are excited to make this investment in the future of retail and our region. We are actively seeking our next acquisition now.”
Younger Partners Co-Founder and YPI Partner Kathy Permenter says the new division has been part of the partners’ long-term strategy. “With the market going through dramatic changes, this is a good time to do it. I started my career in retail, and it continues to interest me. I look forward to investing in this sector,” she says.
YP’s January Spotlight is broker Elaine Xu, who focuses on land, industrial, office buildings and investment properties. The three-year YP veteran appreciates the teamwork and insightful mentors Younger Partners has to offer. She enjoys that every deal is different with much to learn from each one – from strategic thinking to negotiation tactics.
On weekends, she can be found on the tennis court with friends. Her husband and their two sons, a college freshman and a high school sophomore, love to visit national parks (and have visited more than 20 so far). Thank you, Elaine for being a valued member of the Younger Partners team!
This year, YP collected new toys, bicycles, scooters and helmets for children from infants to teens for Toys for Tots. This organization’s primary goal is to bring the joy of the holiday season and send a message of hope to America’s less fortunate children.
Our December #YPSpotlight, Byron McCoy, is one of the nine partners at Younger Partners. He joined the company six years ago and focuses on third-party agency leasing and some sales transactions. Byron says what he enjoys most about his role is that every day, every transaction and every client is different. Getting a property to full occupancy is especially satisfying, too. He and his wife of 31 years, Deah, have three grown children – Kent, Caleb and Katherine – and welcomed their first grandchild this year, Brooks Byron.
Salesmanship has been in Byron’s blood since he was a boy: he was a paperboy for the Dallas Times Herald from the third grade until 11th grade. He was enterprising and came up with the idea to include payment envelopes with the newspapers asking for the subscription payments to be mailed in or pinned to the mailbox, The Herald took the idea citywide with the Dallas Morning News following suit. Named Paperboy of the Year twice, Byron did TV commercials for the Herald and used the money to finance his education at Baylor University.
By Younger Partners Research Director Steve Triolet
Rates are a lagging indicator, in other words, they often don’t react initially to changing market conditions. Still, over the past few quarters, DFW office asking rates have remained stubbornly high, especially in comparison to other large markets like San Francisco and New York City (which have both seen rates drop about 10% over the past three quarters). The level of distress for owners in those coastal markets is high, so their rates have reacted more quickly.
Diving into the details of what I’m seeing in DFW office rates:
*Lincoln Centre recently raised its asking rate across the business park by $2 to $32 (NNN). The catalyst appears to be the Huitt Zollars lease signing for 32,519 SF at Lincoln Centre III. Lincoln Centre is currently well leased with an occupancy rate near 90%.
On the flipside, some properties in Hall Office Park have seen some rate reductions for direct space. Property G4, for example, at 3011 Internet Blvd recently went from $23 (NNN) to $22 (NNN). The property’s occupancy is low; 82% of the property is available between a combination of direct and sublease space.
Roughly half of the submarkets recently saw a slight decrease in asking rates while the other half had slight increases, making the overall rates relatively flat.
To date, the biggest movement in rates has been for sublease space. While the typical discount between direct and sublease space remains near 15% (which is the historic norm), more than a quarter of all sublease space being marketed does not have a quoted asking rate. Still. among the individual subleases, discounts of around 50% have been quoted. Ashford at Centura Tower I is quoting $15 Plus E, while the direct space at that property was recently quoted at $30 Plus E.
In the most extreme case at Energy Plaza, there is a very large sublease for 570k SF that has over a 60% discount in comparison to direct space ($9.50 full service rate), but that sublease has only a year of term left and has been listed on the market for over three years with no leasing activity to show for it.
Our November YP Spotlight is Seyoum Amharay. The YP Parking Operations Manager at Republic Center supervises both valet and self-parking activities; he enjoys meeting and engaging with tenants and customers. In his free time, he loves to cook and led the winning team in the YP 2019 Chili Cook Off despite never making chili before.
Each year, he volunteers to cook for the faculty at his daughter’s school. He plans to take his wife, Hirut, and daughter, Elizabeth, to Milan and Rome next year.
By Younger Partners Research Director Steve Triolet
It’s not really new that office sublease space across the US has been rising rapidly over the past 6 months. Dallas, like many markets, are seeing all-time highs. Currently, DFW has just under 9.3 million square feet available with some larger blocks likely to hit the market before year-end (Pioneer Natural Resources, for example, will place 400 to 600K of its headquarters’ space on the market soon). Current estimates point to sublease space surpassing 10 million square feet before the end of the year. That’s a big number, but what does that translate to? I took a historic look at how much sublease space was absorbed on a yearly basis. Typically, there is a little more than 5 million square feet of sublease available and a little more than half of that is absorbed (2.8 million square feet). The other remaining half does not lease and eventually hits the market as direct vacant space (once the master lease gets to a 2-year term or less).
Below you can see these numbers in chart form, along with a pie chart showing the four submarkets that have the highest concentration of sublease space (Far North Dallas, Las Colinas, Dallas CBD and Richardson/Plano).
Younger Partners Property Services will take over the property management for the 56-story, 1,738,979-square-foot Renaissance Tower at 1201 Elm St. in Downtown Dallas effective Sept. 1.
The Class A trophy office tower, located in the heart of the Dallas Central Business District, is a Dallas landmark known for its distinctive double “X” lighting and majestic rooftop spires.
“We are continually expanding our relationships with owners,” says Greg Grainger, president of Younger Partners Property Services.
This new assignment brings property managed by YPPS up to more than 5 million square feet of local property managed. YPPS ranked No. 15 on the Dallas Business Journal’s 2019 list of North Texas Commercial Property Managers ranked by total local commercial square feet managed.
The on-site property management team will be led by property management veteran Kay Crawford, who comes to Younger Partners to lead the Renaissance Tower from CBRE.
Completed in 1974, the office tower was substantially renovated between 1986 and 1991. Dallas Area Rapid Transit (DART) light rail runs immediately in front of the building and stops at the Akard Street station, just across Field Street from the property. The property also connects to downtown’s extensive underground walkway system.
With most properties taking roughly two years between breaking ground and occupancy, the construction pipeline takes time to shift from changing market conditions. Still, I think it is informative to see how the various property types have changed over the past few years, along with some data on the current under construction pipeline.
As you can see in the chart below, the industrial market seems almost unfazed by the current recession, with almost 30 million square feet of space currently under construction (note this does not include flex properties).
Office and retail properties are show parallel trend lines of peaking in 2016 and trending downward since (The current office pipeline is 7.1 million square feet, while the retail pipeline is 3.3 million square feet).
With recent announcements for the office sector though (Cawley is kicking off The Parkwood, a 120,000-square foot office building in Far North Dallas. First United Mortgage Corp. will occupy about half of the property and
Harwood announced Harwood 14 in Uptown. Harwood 14 is a 27 story, 360,000-square foot office project. Haynes and Boone will be the lead tenant and will occupy about 125,000 square feet).
Of the projects currently under way for office and retail, roughly half of the square footage has been pre-leased (54% and 52%, respectively), so the market is scheduled to have over 5 million square foot of new vacant office and retail space delivered over the next two years (3.6 million square feet for office and 1.7 million square feet for retail).
We did it! Younger Partners is one of Dallas Business Journal’s 2020 Best Places to Work. The winners were selected from several hundred companies and judged based upon the feedback from employee surveys. Thanks to our team for making this such a great place to work. A service company is only as good as its people and we have the best. #YoungerPartners #OurKindofTeam #DFWworks
Our August #YPSpotlight, Parker Morgan, joined Younger Partners as a summer analyst intern from 2015-2017 and became a full-time broker on the office team after graduating from A&M in January 2018.
He enjoys learning more about the industry from the wealth of knowledge possessed by the YP brokerage team. In his downtime, Parker loves to golf and hunt, as well as enjoying Aggie football and the professional Dallas sports teams.