El Paso’s Office Market Announces Its Arrival Through WestStar Tower
It’s not often that a single project captures an office market’s growth and evolution over a 40-year period.
But that is precisely what’s happening in El Paso. WestStar Tower, a 19-story, Class A building, is the first project of its kind to be built in El Paso in 40 years since the 415,000-square-foot Stanton Tower was constructed for El Paso Natural Gas. With co-developers Hunt Cos. and WestStar Bank beginning vertical construction of the 262,000-square-foot building last summer, El Paso’s skyline is set to change considerably upon its completion in late 2020.
The symbolism of WestStar Tower to El Paso is not unlike the relationship between Frost Tower and San Antonio, another city that was starved of major Class A office development throughout the 1990s and 2000s. With both cities experiencing steady job growth from local expansions and new relocations, developers of quality office product are viewing these markets in new lights.
El Paso is also getting younger. According to recent research from El Paso’s economic development department, roughly 40 percent of the city’s 838,000 residents are under the age of 40. The median age is 31 and the city ranks in the Top 10 in terms of its appeal to millennial homebuyers, according to a recent study by USA Today.
How Did We Get Here?
El Paso’s economy and real estate scene are known for their stability; rarely do our markets experience the volatility and swings that define those of larger cities. El Paso’s industrial market is especially renown for its steady fundamentals, which are largely driven by healthy manufacturing activity in our sister city of Ciudad Juarez, as well as warehouse/distribution, transportation, logistics and supply chain activity in El Paso.
For those reasons, demand for quality office space in El Paso has always been present — it just tends to be packaged more unconventionally. Most large companies that have industrial operations in the region tend to house significant portions of quality office space within those facilities, rather than leasing space in the downtown area or other affluent submarkets. This trend of keeping everything under one roof has been present in El Paso for several decades.
Over the last few years, however, office users from the worlds of law, banking, engineering, financial services, technology and contact centers (WestStar itself is a regional bank) have taken notice of the region’s natural job and population growth. The rapidly expanding healthcare industry, fueled in part by the growing population along the border, has also contributed to strong leasing velocities for healthcare-related office space throughout the city.
These office users are engaged in a perpetual challenge for young talent. To that end, the revitalization of the downtown area is paying major dividends. This area has seen tremendous overhauls of its retail, restaurant and hospitality scenes during this cycle, and office users recruiting young talent are using those traits to their advantage.
As a result, the vacancy rate in the downtown office market has trickled steadily downward during the last few years. Rents have risen as demand for quality space from both U.S. and international firms has reached unprecedented levels. The citywide vacancy rate currently stands at about 15 percent, but occupancy is considerably tighter in the downtown submarket.
In the CBD, the most recent “large-scale” redevelopment of the historic Mills Building and Centre Buildings, both completed in 2011, is nearing full occupancy. Additionally, the Borderplex REIT, owner of El Paso’s prominent Wells Fargo Tower and One San Jacinto Plaza (formerly Chase), has steadily enhanced these office properties and is experiencing some of the strongest occupancy and lease rates in decades.
The combined effect of these market forces was the catalyst behind WestStar Tower, as well as several other downtown redevelopment projects that will deliver modern office space. Many of these redevelopment plays include retail or residential uses.
A Vibrant Scene
Certain parts of west El Paso are seeing growth in their office markets via both ground-up and redevelopment projects. But the downtown area has really stolen the show thanks to the revitalization efforts that have occurred in recent years.
The local Triple A baseball team, the Chihuahuas, has posted several successful seasons during its time in El Paso. Strong attendance at games has brought more disposable income to downtown, prompting more retailers and restaurants to enter the market.
The owner of the Chihuahuas, Mountain Star Sports Group, has also brought a United Soccer League (USL) team, the Locomotives FC, to El Paso that will share the field at Southwest University Park with the Chihuahuas until a permanent stadium is constructed downtown. Other established concepts, including Dallas-based Topgolf, Austin-based Alamo Drafthouse Cinema, Flix Brewhouse and I-FLY have also found their way onto El Paso’s entertainment scene. Great Wolf Lodge Resort is coming in the future as well.
In addition, the downtown area has a number of hotels under construction or undergoing redevelopment, and hundreds of new rooms have come on line over the last couple years. Marriott has two properties under construction; the historic Plaza Hotel and Paso Del Norte hotels are also under renovation to the tune of $70 to $80 million each. Consequently, El Paso is looking increasingly viable as a host city for trade shows or conventions.
In virtually any market, the combination of economic growth fueled by industrial expansion, a revamped restaurant and entertainment scene, a slew of new hotels and a slow move toward gentrification can only yield positive results for office developers, investors and brokers.
El Paso has taken some time to reach this inflection point, but without question, it’s happening before our eyes. WestStar Tower, with its Class A features (green spaces, banking, onsite dining, 25,000-square-foot floor plates, structured parking totaling 854 spaces) and proximity to many of the aforementioned amenities that attract young workers, truly reflects this evolution.
With a substantial part of WestStar Tower to be occupied by Hunt & WestStar Bank, and 125,000 square feet of speculative Class A space available for lease, it’s unlikely that El Paso will see multiple office projects of this magnitude and symbolism hit the market in the near future. That’s simply not the way this office sector works. But the fact remains — El Paso has earned the right to sit at the table with the big players.
— By Will C. Brown, SIOR, partner, Sonny Brown Associates LLC, and Adin A. Brown II, SIOR, partner, Sonny Brown Associates LLC. This article first appeared in the April 2019 issue of Texas Real Estate Business magazine.