All indications are Fort Worth’s office market has turned the corner and is improving. The beginning of the year started out with activity and transaction levels that have not been experienced since early 2008. While activity has slowed down, we are still on pace for a good year. With limited new supply and increased activity, we are now seeing rates firm up, reduced free rent and positive net absorption.
Currently, there are a few options outside of the Central Business District for large blocks of Class A space. One lease that helped tighten the market further was the Alcon lease for 87,000 square feet in the Wilcox Plaza. Vacancy rates for suburban Class A space stands at a record low of 3.88 percent. As a result, several developers are actively looking for sites to build new projects. Hillwood recently announced two new office buildings that will be built in the Alliance corridor totaling more than 160,000 square feet. Construction on the first of the two buildings should break ground in January 2013. In addition, by year end, we expect one or two additional projects to be announced in the Fort Worth suburban market.
For tenants looking for space, downtown Fort Worth provides the best opportunities today. Vacancy for Class A space stands at 7.85 percent, down from a high of more than 17 percent in 2010. What’s interesting is the amount of sublease space that makes up the vacancy today versus 2010. In 2010, close to 30 percent of the Class A vacancy was sublease space. Today, that number has dropped to barely above 8 percent of the total vacant space. We expect this trend to continue as the market improves.
The Class A building with the best occupancy is the recently rebranded 777 Main, formerly the Carter Burgess Plaza. The 40-story, green tinted glass skyscraper has occupancy of 96 percent and it is beginning extensive lobby upgrades. Since January, the building has completed more than 125,000 square feet of leases.
Downtown is also experiencing new construction. Sundance Square has broken ground on two buildings that will total more than 200,000 square feet. These buildings, called the Commerce and Westbrook buildings, will have almost 150,000 square feet of office space and will be finished in the fourth quarter of 2013. In addition to the Sundance buildings, Spire Realty Group is renovating One City Place (formerly Tandy Tower) to a 315,000-square-foot Class A office building with a 1,000-car garage to be completed in late 2013. When completed, it will match the Two City Place Tower that was renovated in 2008.
The energy and health related industries continue to drive the Fort Worth office market. The following noticeable leases were recently completed in the greater Fort Worth area: Aetna renewed 120,847 square feet; FracTech expanded/renewed its lease to total 100,000 square feet; Alcon signed a new lease for 87,000 square feet; Basic Energy Services moved its headquarters to 68,000 square feet of space in Fort Worth; and XTO Energy expanded its downtown office to total 24,000 square feet.
While the market has been improving, there are several factors that could impact the amount of space put back on the market and/or the desire for tenants to lease space. The most notable to watch are the following:
· If natural gas continues to stay at historically low prices, look for space to come back on the market.
· Potential downsizing of Jacobs Engineering and Chesapeake Energy, combined with new developments downtown, could add more than 600,000 square feet of available lease space to the market in 2013.
· Uncertainty about the November elections and the global financial struggles could impact hiring in Fort Worth and the demand for office space.
With the new construction and the large amount of space potentially coming on the market, vacancies in the CBD could climb to just below 17 percent. We can only hope the market continues to improve with positive net absorption over the next 18 months prior to the bulk of new space hitting the market. Hopefully, the expression of “Build it and they will come” will hold true as it has in the past in Fort Worth.
— Todd Burnette, managing director of Jones Lang LaSalle’s Fort Worth office