Demand for Class A Office Space, Flexible Work Routines Juxtaposed in Fort Worth
By Chris Doggett, executive vice president, Stream Realty Partners
The allure of the Dallas-Forth Worth (DFW) market continues to make it one of the top corporate destinations in the country.
This past year, DFW ranked number one in the nation in raw population growth. Specifically, an average of 328 people per day were added to the DFW fold, which equates to approximately 119,748 more residents this past year.
This is truly an incredible stat and reflects the fact that the consistent, historically growth of DFW shows no signs of changing course. The cost of living, tax benefits and incredibly convenient location — directly in the middle of the Central Time Zone allowing for a three-hour flight time to anywhere in the continental United States — are second to none.
The vast majority of new, Class A office transactions, including relocations from other states, have landed in new office developments in Irving, Uptown Dallas, the greater Legacy/Frisco area, Allen and Cypress Waters along the LBJ Freeway. This begs the question — why is the Fort Worth area not front and center for these deals?
While many companies in Fort Worth have already returned to their offices, the thinking and processes behind the resumption of onsite office work continues to evolve more quickly by the day. And there is a consistent thread running through the heart of almost every company in every industry coming back to the office.
These companies, more so than at any other time in their existences, realize the critical need to have flexible work schedules for their employees that provide for meaningful skill development, whether working from home or in the office.
The war for talent has never been as tough and competitive as it is today. With this in mind, companies will continue to provide their employees with flexibility and optionality as it relates to orchestrating their return to the office. In addition, we expect the flight-to-quality trend for office space in Fort Worth to continue.
Employers understand that to attract new talent and retain existing talent, they must create and maintain
high-end, collaborative office spaces that entice their employees to want to work on site. In Fort Worth, the recognition of this need has been demonstrated by the positive absorption of almost 200,000 square feet of Class A space compared to the negative 237,000 square feet of Class B space in first quarter 2021.
Yet Fort Worth has lagged Dallas with regard to new development opportunities that are needed to bolster its supply of Class A space. Why? The answer is simple: Fort Worth has not had a true inventory of new state-of-the-art spec office developments — either under construction or recently delivered — that provides the ability to compete for these companies that are looking to plant their Texas flag in DFW. However, that will soon be a thing of the past.
Fort Worth is on the cusp of seeing several best-in-class office developments begin to come out of the ground over the next year. These projects will further enhance the skyline, providing homes for top-notch companies looking to relocate their operations to Fort Worth.
For example, Fort Worth-based Crescent Properties recently broke ground on a new development in the Cultural District. The project will include a 160,000-square-foot, Class A office building along with a luxury hotel and high-end multifamily residences.
Construction of Triune Centre, a 30,000-square-foot, Class A office development by Cornerstone Projects Group and Trident Structures, will also begin next month with the introduction of the first automated valet parking garage system ever built in the United States. This concept will exclusively serve the office building. Vantage Bank Texas signed a lease for half the building at Triune Centre before any dirt was even moved.
Additionally, we anticipate more exciting development announcements in the near future from Goldenrod Cos. regarding two new, state-of-the-art office projects in Fort Worth.
Looking back to a year ago when the pandemic began, the DFW office market has certainly experienced some reduction in terms of leasing volume and velocity. Yet Fort Worth has demonstrated remarkable stability, posting an overall vacancy of 12.8 percent, compared with DFW’s overall 19.5 percent vacancy.
Ranking as one of the strongest submarkets in DFW in the first quarter of this year, Fort Worth experienced 38,092 square feet of negative net absorption, equating to just a 0.1 percent increase in direct vacancy. Furthermore, both Class A and B rental rates increased to $28.85 and $21.76 per square foot, respectively, just slightly lower than the high-water mark set in 2019.
For Stream Realty Partners, office leasing activity in the first quarter was dominated by tenants focusing on Class A space with walkable amenities. Although there continues to be occasional discussions of larger companies considering possible reductions in footprints, we are not seeing a significant trend in that direction.
Instead, we are talking to multiple tenants looking to maintain or expand their footprints. Nevertheless, we expect companies to continue providing optionality for their employees to work from home and/or in the office. Lastly, as evidenced by the booming housing market, we will continue to see a trend of corporate relocations to Texas.
— This article originally appeared in the June 2021 issue of Texas Real Estate Business magazine.