Having been at the same desk and phone for 37 years, I can definitively proclaim that the activity has reached a level in Waco and Central Texas that has never been experienced before.
Blessed with a diverse economic base and stable market growth, the greater Waco real estate market weathered the storm of the last few years rather well with the addition of jobs and capital investment throughout the recession and sluggish economic recovery.
The metro is one of only 34 of the 372 MSAs in the U.S. that has now exceeded its pre-downturn employment levels, and the city saw 20 consecutive months of economic growth in 2012 and 2013. Capital investment in the past five years has totaled nearly $1.8 billion, including corporate, university, health care and public investments.
There’s considerable excitement for several reasons, one of which is a resurgence of the Interstate 35 corridor. With the rise in popularity and awareness of Baylor University, especially its sports, activity has picked up on I-35 near the school, including demo and new construction at a fever pitch. What’s more, the new stadium serves as representation of the excitement and new development.
Industrial Landscape
Since 2010, the majority of industrial activity in Waco has revolved around the absorption or expansion of existing facilities, including those of Allergan, General Dynamics IT, Owens-Illinois, L-3 Communications and Vossloh Fastening Systems. Today, low vacancy (particularly in larger Class B or better facilities), coupled with little speculative development, is driving increased review of new construction opportunities in the Waco area in 2014.
The majority of industrial footprint — roughly 23 million square feet — represents owner-occupied property. Some of the corporate owners include familiar names like Mars, Coca Cola N.A., Caterpillar, Alcoa, Allergan, L-3 Communications and Space X, but investor-owned properties are often local or smaller investors and do not represent national institutional investment.
The metro’s industrial market is concentrated in 11 business parks totaling 15,635 acres. Among them is Texas Central Park at Interstate 35 and Texas Highway 6, which comprises more than half of the market’s industrial base with 13 million square feet, 91 tenants and 12,000 jobs in the 3,700-acre master-planned development. Recent growth at the complex includes Allergan’s $10.6 million expansion in production, Mars Chocolate North America’s $11.8 million expansion in production, and Central Texas Corrugated’s $17 million in facility upgrades.
The overall vacancy at Texas Central Park of approximately 500,000 square feet represents approximately 4 percent of the facilities, and the largest vacancy is 200,000 square feet. Average rental rates range from $1.80 to $4.20, triple-net, and are firming up.
Meanwhile, to the southwest, the 8,700-acre McGregor Industrial Park is experiencing leasing activity, as Space X (recently named the top 100 most innovative companies of the past 100 years by Massachusetts Institute of Technology) expanded its lease two and a half times over and extended to 2020 with options through 2040.
Finally, L-3 Communications, Waco’s largest industrial employer with more than 2,000 aerospace jobs, is also the area’s second largest industrial tenant, owning and occupying approximately 1.4 million square feet of facilities in the Waco International Aviation Park at TSTC Waco Industrial Airport. A significant portion of the complex is located on a ground lease on the airport campus, and that lease was recently renegotiated and extended to a longer term.
Trends seem to indicate a continued increase in industrial space absorption, with very little planned speculative development. The exception in construction over the past 18 months is the redevelopment of a 330,000-square-foot General Tire manufacturing facility in the downtown area into the Baylor Research and Innovation Collaborative, the new anchor of the Central Texas Technology and Research Park.
January 2013 marked the beginning of Phase II, brings total construction to $45 million to date and includes finishing out advanced lab spaces; preparing academic and research space for multiple Baylor research centers; constructing graduate-level engineering program facilities; and completing 45,000 square feet of shelled industry labs.
Office Landscape
The office footprint in Waco is approximately 7 million square feet. Vacancy in owner/investment buildings is holding steady at 5 percent.
Five Class A towers, representing approximately 20 percent of the total market, have rental rates in the $15 to $18 per square foot range. Users are primarily professional and financial tenants, including insurance companies such as Texas Life, Amicable Life Insurance Company, American Income Life, National Lloyds and Texas Farm Bureau; banks; franchising/licensing headquarters such as Dwyer Group, Curves International and Profiles International; and health care processing companies such as C3, EMSI and General Dynamics IT.
Waco’s office market has outpaced industrial in the number of new construction projects. More than 100,000 square feet were completed in the last quarter of 2013 and second quarter of 2014, including a $6.7 million, 25,750-square-foot regional office, processing and donor center for Carter Blood Care; and a $27.9 million, 88,000-square-foot headquarters campus for Brazos Electric.
Absorption of the majority of these recent additions — going further back in 2013, about 200,000 square feet in new construction, conversions and reconstruction projects, primarily in the downtown and southwest medical office markets — has contributed to the stability of vacancy rates.
Conclusion
In both the industrial and office markets in Waco, there remains very little speculative construction. However, with continued pressures caused by absorption, construction activity in Greater Waco’s office and industrial markets is resuming at a modest pace in 2014. The region’s economic diversity, depth of strong corporate owners and recent lease extension activity will fuel the ongoing stability and growth of Waco’s commercial real estate market.