Like other markets in the country, the Fort Worth office market began its decline in 2007, got worse in 2008 and 2009 and then visibly rebounded by the end of 2010. The ‘bottom’ of the market, by general consensus of local brokers, was in mid-2010. Without the booming energy business, conditions would have been much worse. Additional market drivers that helped support the local economy and office market during the recession were healthcare and government.
The Central Business District Class A sector is comprised of 13 projects with 5.39 million square feet, while the Class B inventory includes 31 buildings with 3,726,829 square feet. Including Class C buildings, total office inventory is a little more than 10 million square feet and the current overall vacancy rate is 12.1 percent. The reported Class A rent averages $26.87 per square foot, plus electricity. The Class B reported average rent is $18.38 per square foot, plus electricity, according to the most recent CoStar Market Report.
Other Fort Worth submarkets include Northside, Southside, Alliance, Wise County and Hood County.
The downturn and recovery has looked like the classic hockey stick pattern — slow downturn and sharp upturn toward the previous high when things started to turn around.
All CBD office rents steadily dropped from more than $24 per square foot in mid-2008 steadily to a low below $21 per square foot in mid-2011, then jumped up to $23 per square foot by year-end 2011. Class A rents averaged $26.87 per square foot with fourth quarter vacancy at 6.3 percent, down from 7 percent at the end of the third quarter. Class B vacancy declined also but more modestly. Quoted rates averaged $18.31 per square foot at the end of the fourth quarter.
While no one sets out to build a Class C building, it is a common building category in all markets due to changed environments, age, lack of maintenance and, sometimes, just bad luck or location. Even so, the trend lines tell the same story. Rents fell from $18 per square foot quoted to $16 per square foot in mid-2009, then rose back to $18 per square foot. Vacancies dropped a little, to approximately 5 percent during the last year.
There is no new office construction any place in the market. However, the Tarrant County office market is rising but it isn’t clear how far and how fast conditions will improve.
Markets reflect national economics as well as local conditions. The upcoming presidential election, problems in Congress, Iran and continued instability in the Middle East negatively impact new business formation and expansion with the current instability affecting oil transportation. Higher gasoline prices are but one of the net changes caused by these trends.
Natural gas production, and obviously, natural gas exploration are in a voluntary decline. It is not because of an inability to produce more gas but an inability to sell the product at a decent price. That hurts the specific energy component of our local office market. The bankruptcy of Texas-based American Airlines is also a negative factor, as well as the continued disappointment in mostly new residual housing starts — particularly single family.
But, there are bright spots. Employment is growing in Fort Worth, as is worker compensation for almost all skilled sectors. We are seeing immense new road and highway construction, which is always the precursor to real estate development. And the existing buildings are slowly filling up.
But the basic problem remains — no one can build and maintain a true Class A building at today’s achievable rents. We’re getting close, but we are not there yet.
— By Karen Simon, executive vice president and managing partner in the Fort Worth office of Dallas-based Bradford Real Estate Services/CORFAC International