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Dallas Office Market Grows Its Share of Tech Firms

Kaizen Development Partners is underway on construction of The Link at Uptown. The 300,000-square-foot project is located in one of the city’s highly amenitized neighborhoods, a key factor in the war for talent among Dallas office users.

While Austin is the Texas city that has become most synonymous with a tech-heavy office market over the last decade, the remarkable amount of overall job growth in the metroplex is allowing Dallas to slowly grab a larger piece of the tech pie.

While some of the fastest-growing tech firms in the market right now — Google, Facebook, Indeed — have committed to larger office footprints in Austin, many of these firms still retain offices in Dallas due to its strong supply of qualified labor and relatively cheaper cost of doing business.

However, in addition to having offices in Dallas, these firms have contributed to commercial real estate growth in the metroplex through build-to-suit data center developments and large colocation leases with established data center operators in the market. Facebook’s $1 billion data center development in Fort Worth is among the largest in the country, and construction recently began on Google’s $600 million data center campus in the southern suburb of Midlothian. IBM SoftLayer, Rackspace, and LinkedIn are other examples of technology firms taking large data center leases in the Dallas metroplex, North America’s third-largest data center market, according to 2019 figures from DataCenter Hawk.

Jim Graham, Newmark Knight Frank

Outside of the context of hyperscale cloud users — as the likes of Amazon, Google and Facebook are known in data center circles — the steady growth of international tech firms like AT&T, IBM, Cisco and Samsung have spurred Dallas to become a Top 10 office market for this sector. According to the Dallas Regional Chamber, the city ranks seventh in the country in terms of its per capita concentration of tech jobs.

The institution also notes that over the past year, the metroplex as a whole has added more than 20,000 new tech jobs. Using a benchmark ratio of 150 square feet of space per employee, this employment growth translates to 300,000 square feet in demand for new office space.

Lastly, tech companies have accounted for about 30 percent of the total volume of leasing activity in Dallas over the last 24 months, according to NKF Research. In 2018 alone, absorption from tech users totaled about 2.1 million square feet of office space. The biggest lease during this period involved telecommunications giant Nokia, which took down two full buildings and 350,000 square feet at the Cypress Waters campus.

Why Dallas?

The presence of a highly educated and qualified workforce continues to be the biggest driving force in site selection for office users, particularly as it regards firms with targeted, specialized labor needs.

In both the urban core and suburban submarkets, Dallas offers these companies many options for establishing offices in highly amenitized environments — a key consideration in the war for talent. Working within a vibrant setting that offers access to shopping, dining and entertainment is critical in attracting the best talent, and Dallas continues to see this principle underlie the development of new Class A office product.

Tech firms of all types, but especially those relocating or entering the market for the first time, are generally willing to pay higher rates to operate out of these environments and attract the best employees. Further, for relocating firms, the absence of a state income tax and the ability to find an affordable home in a good school district makes the idea of moving to Dallas a fairly easy sell.

In addition, tech companies of all sizes are drawn to the low cost of doing business in Texas. With regard to buying and leasing office space, this feature encompasses everything from sales prices to rental rates to property taxes.

According to NKF data, both the average sales price and rent for Class A office product in Dallas are about 33 percent lower than other gateway markets with strong tech presences; such markets include Boston, Seattle and San Francisco.

Lastly, the metroplex is home to one of the country’s four patent and trademark offices, making the speed and logistics of securing intellectual property protections all the easier for tech firms.

The Market as a Whole

The aforementioned conditions of a strong workforce and low cost of doing business have made the Dallas market appealing to office users of all varieties, tech notwithstanding. In addition, the affordable cost of living also makes Dallas an exceptionally promising market for prospective job seekers to target upon entering the labor force.

Dallas added more than 100,000 new jobs across all nonfarm sectors over the past 12 months. The pace of job growth is expected to remain strong to close the year, and we continue to field high levels of interest and demand from firms across a variety of sectors that are either looking to relocate to Dallas or expand within it.

Land and construction constraints are limited the amount of new supply within the 635 loop, ensuring that submarkets like Allen, Plano and Frisco continue to be hotbeds of development.

But the healthy level of demand across the market as a whole suggests that it will continue to see positive rent growth. Because the emergence of tech in Dallas is but one of many testaments to the economic diversity of this market, a feature that should buoy its office sector through any slowdowns at the state or national level.

— By Jim Graham, SIOR, managing director, Newmark Knight Frank. This article first appeared in the August 2019 issue of Texas Real Estate Business magazine. 

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