Why Dallas May Have A Competitive Advantage in the Office Market Recovery
By Brett Merz, senior vice president and asset manager, KBS
As this unprecedented year hits the midpoint of the fourth quarter and office investors consider their options, one market in Texas stands out: Dallas. This market has historically shown strong resiliency and continues to do so throughout the pandemic.
While Texas as a whole has been ahead of many other states in terms of allowing tenants that are eager to return to the office after the COVID-19 shutdown to do so, the Dallas office market has especially embraced reopening and returning to work.
According to a new report by Kastle Systems, Dallas County leads the country in terms of the share of employees who are back to their workplaces following government-mandated shutdowns.
Across the 10 largest metroplexes in the country, an average of 27.4 percent of employees are back in the office, while Dallas employees are returning to work at a rate of 43.3 percent. This figure compares favorably to proportions of employees returning to offices in other markets, including Los Angeles (34 percent), Washington, D.C. (24 percent) and San Francisco (14.7 percent).
This news is a testament to tenants’ appetite for occupying office space and the market’s resiliency despite the persisting pandemic. We believe — and as a recent survey from Gensler shows — that the majority of people want to return to their offices as quickly as possible because this environment allows for increased collaboration among team members.
As an owner-operator of high-quality office properties in the epicenter of key markets throughout the United States, KBS has a solid track record of investing in markets with strong potential like Dallas.
The firm has acquired several premier office properties in the market for its client portfolios. These include 3811 Turtle Creek; Highland Park Place, for which KBS recently signed several new leases and an expansion; Preston Commons, which is just completing a large renovation; Providence Towers, which is currently under renovation; and Sterling Plaza. KBS has also begun leasing at Novē at Knox, a multifamily high-rise development situated in the highly desired Knox/Henderson district, just a few miles from downtown Dallas.
Dallas may be poised to recover quickly due to the fact that the region is diversified in terms of its economic drivers. These industries range from manufacturing to insurance to real estate and much more. While some of these industries have been hurt by COVID-19, diversification has historically mitigated the negative impacts of an economic downturn affecting specific industries.
In addition, the tenants who are coming back to their offices are once again eating out at local restaurants and are more likely to visit nearby businesses such as coffee shops, repair shops, dry cleaners, nail and hair salons and numerous others that depend on drop-in customers to operate. This benefits those businesses as well as the city and will likely encourage additional investment in Dallas office properties.
Office owners and operators can welcome tenants back to their buildings without compromising their health and wellness. We see numerous examples of design and safety features being implemented in office spaces to address COVID-19-related concerns.
KBS has implemented measures such as increased sanitation through bipolar ionization, UV lighting and additional fresh air circulation. KBS has also added antibacterial surfaces and touchless features in common areas, changed office layouts to better support social distancing and installed simple barriers like plexiglass between workstations. These additional features are expected to be a part of office development and operation for the foreseeable future.
Companies will continue to be drawn to live-work-play markets with strong population and economic growth and access to accredited universities. For example, KBS is in the midst of adding a new unique café concept, Fairgrounds Coffee, to Highland Park Place with the expectation that it will activate the surrounding area.
Set to open in the first half of 2021, this entirely new concept features a chef-inspired menu along with a variety of premier coffee and tea selections from around the world. The café will also have a large outdoor patio, perfect for al fresco dining.
Like most markets, Dallas has had some struggles throughout the pandemic, but seeing companies return to the workplace may encourage other tenants in the region to do the same. Savvy owners and operators will assess each market and property independently and regularly based on current market conditions and trends seen emerging in those markets. They will then make acquisitions and dispositions to their client portfolios as necessary.
Our goal as a landlord is to work collaboratively with our tenants to create comfortable environments moving forward. Starting early with a back-to-the-office strategy may have placed Dallas ahead of the curve when it comes to restarting the economy and reinvigorating the office market after COVID-19.
With more tenants showing enthusiasm for returning to the workplace in Dallas than in any other market, the city may have jump-started its office market recovery.
Brett Merz is senior vice president and asset manager for KBS, one of the largest investors in premier commercial real estate in the nation. He serves as the market leader responsible for carrying out asset acquisition and asset management objectives in the Dallas-Fort Worth area on behalf of KBS REITs, pension funds and sovereign wealth fund clients. KBS is a private equity real estate company and an SEC-registered investment adviser. SEC registration as an investment advisor does imply any particular level of skill or training.