Population Boom Spurs Momentum in Fort Worth’s Office Market
These days, one of the most widely-shared facts about Texas’ economy is the fact that the Dallas-Fort Worth (DFW) metroplex adds about 360 new residents per day.
But a lesser-known part of that statistic involves the fact that Fort Worth is experiencing a faster rate of population growth than Dallas. According to U.S. Census data, Fort Worth was the third fastest-growing city in the country from 2012 to 2017.
In 2018, Fort Worth gained 20,000 new residents, compared to just 2,000 new Dallasites. According to the latest information from the U.S. Census Bureau, Cowtown is now the 13th-most populous city in the United States, having surpassed San Francisco and Columbus, Ohio, to reach a total of 895,000 residents.
On the heels of all that population growth has come a rapidly expanding local economy. Census data shows that Fort Worth saw more than a 21 percent increase in its population of employed residents in the five years leading up to 2017. This growth enabled Fort Worth to become the third-fastest-growing U.S. job market.
Part of Fort Worth’s appeal is the fact that it has a diverse employment base, with growth in medicine, manufacturing and warehousing/distribution being especially pronounced during this cycle. The city remains committed to continually improving its diversity and bolstering its workforce.
City officials are also making a point to invest in the types of initiatives that will continue to draw in new residents. This includes modernizing the Stockyards District, opening the new $540 million Dickies Arena and revitalizing areas like Near Southside into lively urban developments.
Other areas, such as Panther Island — an 800-acre site north of downtown that developers hope will become a top commercial and residential development — hint at additional growth down the road.
Meanwhile, AllianceTexas has become a seemingly unstoppable economic engine for Fort Worth. The 26,000-acre master-planned, mixed-use development in North Fort Worth is home to 525 companies occupying more than 50 million square feet of industrial and office space. According to a recent press release from the City of Fort Worth, AllianceTexas generated an incredible $7.31 billion in economic impact in 2019.
Office Sector Impacts
When all these factors are considered together, Fort Worth’s outlook appears positive, which is evident in the city’s office market.
In the last few years, there has been concern about some significant vacancies in the downtown area, especially following the move-outs of large companies like residential homebuilder D.R. Horton, energy firms XTO and FTS International and the U.S. Department of Housing & Urban Development (HUD).
Today, those vacant offices are gradually filling up, thanks to an uptick in deals like the recently announced Oncor lease for 202,000 square feet at 777 Main.
Fort Worth’s overall office vacancy rate fell 140 basis points from the fourth quarter of 2018 relative to that period in 2019, ending last year at 12.8 percent. For regional context, that is significantly lower than Dallas’ office vacancy rate of 19 percent and the overall metroplex rate of 18.5 percent.
In Fort Worth, net absorption was positive throughout 2019, ending the year with more than 545,000 square feet of space absorbed, compared to 2018’s total absorption of around 111,000 square feet.
Although Fort Worth’s total office inventory is a little over 19.2 million square feet, there are several significant new developments in the works in both the Downtown and West/Southwest submarkets. We are seeing growing potential for more spec office buildings; however, many developers are holding off until a large tenant is secured.
As vacancy gradually constricts, competition is increasing for the best office space. We’re seeing average Class A office rates inch higher, from $28.68 per square foot to $29.08 per square foot year-over-year, although some newer developments are now in the $40 per square foot zone.
Texas office tenants continue to desire certain amenities associated with office buildings such as walkable shopping, dining and entertainment options, as well as fitness centers, conference centers, strong security and covered parking.
Many landlords are hoping to entice new tenants by offering more on concessions, such as free rent and higher tenant improvement (TI) allowances while allowing them to keep their rental rates high.
Given Fort Worth’s strong population and job growth, it’s no surprise that the local office market is starting to rebound after having a few difficult years. Cowtown also has strong prospects for younger generations of professionals. This potential is visible through the incredible number of multifamily deliveries throughout the city.
According to RentCafe, the DFW region currently leads the United States in the development of new multifamily units, and Fort Worth has actually exceeded Dallas in apartment construction. This is likely due in part to the availability and relatively low price of land in and around Fort Worth — dirt is becoming increasingly scarce in Dallas.
Fort Worth is also generally more affordable for renters than most large metros. Consider that a one-bedroom apartment in Fort Worth averages $980, compared to the national median price of $1,220, according to a report by Zumper, which tracks nationwide rental prices.
As younger residents move into Fort Worth, the workforce will become increasingly diverse, providing a strong labor pool that is attractive to all manner of office-based businesses.
— By Emily Hoffman, director, Cushman & Wakefield. This article first appeared in the March 2020 issue of Texas Real Estate Business magazine.