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Dallas Office Market: Do We Need, Want or Have to Return?

One-Victory-Park-Dallas

Pictured is One Victory Park, a 470,008-square-foot office building owned by Clarion Partners in the Uptown/Turtle Creek submarket. The building’s Class A amenities and proximity to walkable shopping, dining and entertainment options within the Victory Park mixed-use development have been factors in getting tenants to return.

By Cynthia Cowen, managing director, Cushman & Wakefield

Throughout the past 18 months, there has been an ongoing discussion about returning to the office. Culturally, financially, production-wise — does it make sense to return? There is so much that goes into making these decisions, and there isn’t a simple yes or no answer. 

It might depend on the industry, the generational differences among employees, the job functions being performed and more. Baby boomers tend to be critical of millennials’ desire to have greater balance and their preference for working at home, but what about recent college grads? They need to absorb as much as information as they can, but how do they achieve that at home? What about those in child-bearing years? They may want to stay home to juggle it all under one roof.

Cynthia Cowen, Cushman & Wakefield

Cynthia Cowen, Cushman & Wakefield

In 25-plus years in the commercial real estate industry, our team has never witnessed employees possess so much control. In speaking with tenant representation brokers and their clients, the message remains that employers are struggling to figure out how to get their employees to come back to the office. 

According to Cushman & Wakefield’s “Workplace Ecosystems of the Future” report, there is a strong consensus among leaders that declines in workplace culture, innovation and creativity are inevitable when people work entirely remotely. 

Hybrid working, wherein employees spend part of the week working in the office and the other part working from home or in a third location, is expected to more than double going forward, while exclusively remote structures will remain the exception. In addition, the real estate industry is expected to become nimbler as tenants require greater flexibility in terms of space, amenities and leasing terms.  

The most innovative employers and developers will be able to entice employees to show up in the office by creating an environment that contributes to and assists in creating a better “life balance” for all employees. The purpose of the office will be to provide inspiring destinations that strengthen cultural connections, learning and bonding with customers and colleagues, while also fostering creativity and innovation.

With that in mind, a trend that started in Dallas more than 10 years ago will be even more prominent moving forward. And that trend lies in the fact that demand for and absorption of Class A space has consistently
outpaced other classes of office space, not only due to it being newer, but also, more importantly, because of its amenity packages, green spaces and walkable environments. Reporting to newer, brighter and cleaner buildings can motivate employees to get dressed and commute to their offices. The environment must create a setting that, for employees, makes it “worth their time” to return.

Many firms are putting their real estate decisions on hold if they still have time left on their leases. Those with looming expirations are being forced to make decisions, but many are holding still and only negotiating short-term renewals. It feels like many office users are still in wait-and-see mode. 

However, though still below pre-pandemic levels, the 2.5 million square feet of leasing activity transacted in Dallas-Fort Worth (DFW) in the second quarter of this year was nearly 5 percent higher than that period in 2020. 

With regard to leases signed in the first half of 2021, 22 percent of those tenants took occupancy of their spaces in the first two quarters, while 46 percent will move in during the second half of the year and 15 percent will take occupancy in the first half of 2022. These findings are in line with Cushman & Wakefield’s office forecast for negative absorption peaking in the middle of this year before turning positive in the second half of 2022.

In DFW, it appears that about 50 percent of employees are reporting back to the office. This can often be felt through morning commutes as traffic continues to intensify around Labor Day. Many employers are requiring employees to report back to the office after the holiday weekend.

Policies are being put into place that will track employees’ vaccination status. These requirements could put more pressure on employers as they try to navigate the process of getting their teams back into the office, which could hamper the creation of the desired culture if everyone can’t be brought together. 

Firms are closely monitoring their real estate requirements. But it is still too early to fully understand the impact  of COVID-19 on company culture and how to safely move forward and stay profitable and competitive. 

Human resources professionals certainly have their hands full trying to determine how employee work routines will be structured going forward while keeping everyone safe and healthy. It will take the full support of the C-suite and human resources professionals, along with their real estate advisors, to devise a strategic plan regarding employees and their future workplace environment. 

— This article originally appeared in the August 2021 issue of Texas Real Estate Business magazine.

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