Fort Worth Office Market Poised for Steady Growth in 2017
Despite waves of new development and rebounding oil prices, the Fort Worth office market hasn’t changed.
It reflects the city’s lifestyle and attitude — stable and patient — and optimistic as to what the future holds. As businesses come and go and vacancy rates fluctuate, the Fort Worth office market views the long-term potential of its investments and confidently forges ahead.
Much of the new development we are seeing is southwest of downtown. The West Southwest submarket accounts for 62 percent of the construction begun or underway in 2016, with The Offices at Clearfork accounts for 330,000 of the 734,000 square feet built after 2016. The new vision for the master-planned, 270-acre Clearfork development includes 2,500 apartment units, two million square feet of office space, and 1.2 million square feet of retail space anchored by Nieman Marcus.
Fort Worth’s CBD is adding its first new building since Sundance Square, which was built in 2014. The property at 640 Taylor St. will add 280,000 square feet and will be 51.5 percent leased upon completion. Its owner, Jetta Operating Co. Inc., and namesake, Frost National Bank, will occupy 140,000 square feet.
Effects of Westward Migration
The Offices at Clearfork and Frost Tower only account for 3 percent of office space in Fort Worth, but concerns are rising over vacancy rates increases. The overall Fort Worth vacancy rate was 13.7 percent in the first quarter of 2017, up 2.1 percent from the prior quarter. Vacancy rose from 9 percent in the first quarter of 2015 to 11.5 percent during that period in 2017, and sublease vacancy rose from 0.3 percent to 0.7 during the same time frame.
Contributing to the rise in vacancy rates is the loss of notable longstanding tenants, including construction firm D.R. Horton, law firm Shannon Gracey Ratliff & Miller and RadioShack. There is also a concern as to whether XTO Energy will stay in Fort Worth or consolidate in Houston.
Another contributing factor is the movement of many established Fort Worth tenants from the CBD to the newer developments west of town. For example, mining company Lhoist North America Inc. moved its operation southwest, going from 3700 Hulen St. to 5600 Clearfork Main St.
London-based medical equipment manufacturer Smith & Nephew, which is consolidating its St. Petersburg, Fla. offices, also plans lease space at 5600 Clearfork Main St. for its world management division’s U.S. headquarters. This move comes after the company’s acquisition of Fort Worth-based Heathpoint Biotherapeutics
Consistently Stable Rates
Though vacancy rates have increased, market rental rates remain relatively stable. This is because long-term private real estate holders own the majority of Fort Worth’s office space. These holders understand the boom-bust nature of the energy cycle and think long-term when making real estate decisions.
The projected increase in oil and gas production is also contributing to stability. Drilling activity in the Permian Basin is creeping upward since reaching its lowest point in five years, and prices are reaching levels that allow operating expenses to be profitable again. As oil prices increase, real estate interests tied to oilfield service companies will increase as well.
Chisholm Energy Partners, which leased 22,000 square feet at 801 Cherry St., exemplifies the growth from rebounding energy prices. Other oil and gas firms expanding their real estate footprints include Encana Corp., which has subleased space at 420 Throckmorton; and Blackbeard Operating LLC, which leased 10,000 square feet lease at 1752 River Run.
Jetta Operating broke ground on its new downtown headquarters, the aforementioned Frost Tower, in Q4 2015. At that time, West Texas Intermediate (WTI) crude was trading at $37 per barrel. A couple months after construction began, Frost Bank leased space at the property.
Oil and gas is not the only confident industry in Fort Worth. In 2016, Lockheed Martin renewed both its office lease in Fort Worth, affirming the company’s commitment to the city’s defense sector. Calcomp Inc. and C&S Propeller, two aviation companies, both relocated from California to Fort Worth and signed 25,000-square-foot and 18,000-square-foot leases, respectively.
Fort Worth’s healthcare sector also gained two new companies: Creative Solutions in Healthcare and Rx.com, which leased 13,000 and 22,000 square feet, respectively.
As oil prices rebound and the Texas economy grows stronger each day, Fort Worth will continue to benefit with steady, strategic investments in its office sector.
— By Mike Otillio, Director of Research, Colliers Dallas. This article first appeared in the May 2017 issue of Texas Real Estate Business magazine.