Dallas, Fort Worth Office Markets See Strong Growth in Professional Services
The Dallas office market has changed drastically over the past 10 years.
Though Far North Dallas has gotten its fair share of notoriety during this time (and justifiably so), the fundamentals of North Texas as a great place for business are sparking growth and activity across the market for established companies and those looking to relocate.
Consider Las Colinas, which over the last few years has seen several major headquarter relocations, including large healthcare providers that have expanded or consolidated their regional workforces in this area. Currently, Dallas has 5.3 million square feet of Class A office product under construction, 2 million of which is in Las Colinas. In fact, since 2009, Las Colinas has added over 54,000 employees.
That’s equivalent to a full Boeing 737 landing in Las Colinas every day for a year, unloading its passengers and everyone staying. Even with this remarkable influx of new jobs and our growing population, the competition for talent in Dallas remains fierce.
Jason Savings, an economist with the Federal Reserve Bank of Dallas, recently noted that we’re in the midst of a historically tight labor market, the likes of which haven’t been seen since 1969. The Irving–Las Colinas submarket leads the pack for Texas at 2.9 percent unemployment, well below the rest of Texas (3.4 percent) and the United States (3.5 percent).
Now more than ever, companies are focusing strongly on talent and the ability to attract and retain it by providing employees flexible working hours and an office in a live-work-play environment, in addition to competitive benefits and larger salaries.
From a commercial real estate perspective, those offices that offer easy access to the region’s deep and diverse labor pool and numerous walkable amenities are usually the most attractive and sought after. Plano’s Legacy submarket, Frisco’s The Star development, Cypress Waters and Uptown have been these leading areas for top talent recruitment and retention in Dallas over the past five years.
Construction costs have also reached all-time highs. Given the amount of new development, these rising costs are creating a new challenge for the market given the amount of development. But thanks to new methods and advanced technology, developers have overcome many of these challenges and slowed rising costs (for now). This has allowed Dallas to stay ahead of an elevated demand for office product that shows no signs of slowing down.
We’ve grown north over the years so it would be easy to say future hot markets will be North Frisco, Allen and McKinney. However, areas like Irving-Las Colinas should continue to see substantial growth due to the location between two major airports, easy ingress/egress to major thoroughfares and value office options compared to those of alternative Dallas submarkets.
Office Activity in Cowtown
Until 2015, Fort Worth’s office tenant base comprised of a significant number of energy firms, from production to midstream and service companies. While Fort Worth still has a fair amount of energy-related office tenants, the city’s tenant base has steadily become much more diverse since the last major oil downturn.
Fort Worth has seen a major surge in professional services tenants occupying more and more office space. This trend is due primarily to the city’s population and the area job growth. During these expansions, we have consistently seen tenants purposefully locating and designing their spaces as a tool to attract and retain talent.
Anecdotally, we have worked with clients over the last few years that have been experiencing growth as significant as 200 to 300 percent and have been willing to locate in areas previously not considered “typical office” destinations.
Fort Worth has recently seen the revitalization of many office submarkets, and even the creation of new ones in The Foundry District and The Stockyards. While downtown Fort Worth continues to be the central focus for many tenants, this area’s rental rates and parking expenses have caused some tenants to look into the surrounding submarkets.
The Clearfork development has brought brand-new, Class A office product and major retailers to the Southwest Fort Worth submarket. This area had been lacking in new office development for years, but the Clearfork development created a very attractive and active atmosphere with many restaurants within walking distance to help tenants attract and retain talent.
The Near Southside submarket is a strong, up-and-coming area with its creative atmosphere combined with the proximity to downtown. This submarket houses creative users such as advertising and design firms. While there are some new construction projects in the area, predominantly anchored by medical users, there has been a big push for redevelopment of older buildings for the area’s creatives and food and beverage tenants.
Many older existing buildings throughout the submarket have had their interior spaces opened up throughout while maintaining the original exterior aesthetics, which makes for some very creative and unique work spaces. We’ve recently worked with WRG, a certified Herman Miller Dealer, to find a creative workspace in the Near Southside submarket that allows direct access to clients that are located Downtown.
Among the challenges we’re seeing are rising construction costs and lead times associated with the buildout of new spaces. Rents have been slow to react to a point that supports large-scale new development, resulting in an almost 97 percent occupied West/Southwest office market.
— By Harrison Burt, senior associate, JLL; and Blake Rogers, senior associate, JLL. This article first appeared in the December 2019 issue of Texas Real Estate Business magazine.