After years of being redlined, Dallas is finally coming into its own as a core national office investment market. Lease rates are getting a boost, too, as companies move into the area and developers kick off new projects. So who stands to gain the most in 2014, and what should be done about challenges that remain—like vacancies in the core of downtown Dallas? To tackle these topics, we gathered seven industry experts for a roundtable discussion. Participating were (from left in photo): Mark Dicksenson of Cushman & Wakefield of Texas, Randy Cooper of Cassidy Turley, Kim Butler of Hall Financial Group, Nora Hogan of Transwestern, Brad Selner of Jones Lang LaSalle, Bill Cawley of Cawley Partners, and Moody Younger of Younger Partners.
D REAL ESTATE ANNUAL: Let’s start by talking about 2013. Did office leasing activity meet your expectations?
NORA HOGAN: Following a presidential election, it’s always a great first six or seven months, historically, and we saw that. We came out of the gates, and it was like, wow. Deals were just coming out of the woodwork.
MOODY YOUNGER: If you look at the stats, 2013 will exceed most expectations. But there’s still some uncertainty in the market. The bigger deals are still slow to get done. Some companies are continuing to kick the can down the road versus making commitments. The market is healthy and feels good, but I don’t think it’s white hot.
KIM BUTLER: If there had been some bigger blocks of space in certain submarkets, you would have had even more leasing. Some markets are really hot, where users are struggling to find space.
MARK DICKENSON: The market seemed to stabilize in 2012; 2013 was more about the window closing on opportunities. The message to the users was, “If you want quality or you want value, you better make your deal in 2013, because 2014 is going to be an even tougher play.”
BRAD SELNER: We continue to be reminded how blessed we are in Texas. We created about 111,000 jobs in the last 12 months—second only to New York City. DFW represented 37 percent of the total job creation in the state of Texas, and new jobs translates into new leasing activity.
RANDY COOPER: External forces are a big factor, too. Companies based in other markets are making huge commitments here. It’s not the cheap office space, the cheap housing, or the central time zone. It’s not D/FW Airport. Those are all great fundamental things. But it’s the population shift to Texas and to DFW that’s attracting the employers. Add that to the business climate and environment, less taxation, and all the other things that have been in place for so long—that’s why companies are making decisions to grow in Texas.
BUTLER: Financially, they’re able to do it now, too. They’re feeling better about their businesses and balance sheets.
COOPER: Regardless of where you are politically, there’s only so much that folks with fiduciary responsiblity in directing the growth of a company can do, when unions are killing them and taxes are killing them. That’s why we’re seeing population growth in North Texas, and that’s why we’re seeing job growth.
D: The population growth and corporate relocations are feeding one another.
BILL CAWLEY: People are moving here because the jobs are here, and companies are moving here because employees are here. And in places like California and Illinois, they’re taxing companies that bring jobs to those markets. So why wouldn’t they leave?
CAWLEY: I remember in the 1990s and 2000s, we would do studies for California-based companies that were considering a relocation to Texas or another market, but they’d never move. Now they’re actually doing it. I’ve never seen activity like this—such depth of real deals.
COOPER: Because of the way the world works now, you can have a CFO on the East Coast and a CEO on the West Coast. Maybe the owners of the company, or the top decision-makers, they’re going to stay in California. They love it. You know, taxes, schmaxes. They’re saying, “We’re not going to go move to the desert, but we will move the company to the desert, and we’ll enjoy all the benefits.” We’re seeing a lot of that.
D: Looking ahead, who will be the submarket winners and losers in 2014?
DICKENSON: I think Uptown will continue to be a big winner. Las Colinas has really turned the corner, too. Looking back on 2013, Las Colinas made probably the biggest jump of anybody in the DFW area. It used to be just be about the airport, but it has become more about access to the workforce. In Las Colinas, you’re within a 25-minute drive to about 3 million or 4 million people. Companies look at their employee demographics, and they’re spread out. They’re northwest or they’re southwest. They’re Mid Cities. They’re North Dallas. With the highway infrastructure that’s now in place, you can still reach people all the way up to Frisco in under 30 minutes.
HOGAN: The biggest difference is they have the space and nobody else has the big blocks of space, and it’s a wonderful market.
SELNER: I’d say the winners for next year—there’s really two elements. You’ve got who’s going to win from a pricing standpoint and who’s going to win from an occupancy standpoint. The winner on the pricing standpoint is going to be select high-quality buildings in high-target markets. We’re probably going to see some records broken in terms of effective rental rates. From an occupancy standpoint, I believe the winner is going to be the B buildings in B markets. We’re in the third leg of the recovery here. The recovery first leg is flight-to-quality at low cost. That was 2012. And 2013 was really about the market settling in. I think 2014 is going to be all about back-filling these B buildings. They’re going to be the big movers in 2014.
“A lot of companies are looking for labor not only during the day, but also at night. They’re looking to get longer days out of their facilities.”
COOPER: I can’t overemphasize how important I think DART is. Big companies are looking at labor and how people are going to get back and forth to their jobs. Las Colinas checks so many boxes, especially once DART is complete. Don’t panic, but I think Legacy is a bit questionable, because it misses the public transportation in a big, big way. I think Legacy could become more for local decision-makers only, as opposed to big national facilities, corporations that need a floor or two. Big cities, mature cities, have light rail, not buses, and I think that’s a big negative for Plano and Frisco. Las Colinas and Richardson check so many boxes, not just for local decision-makers, but for corporate relocations and for those who are looking at the city on a more macro basis, looking at employment and transportation and other things.
“A lot of companies are looking for labor not only during the day, but also at night. They’re looking to get longer days out of their facilities.”Randy Cooper
BUTLER: I agree that it’s 100 percent about the labor. Just yesterday we were talking to a company looking to set up a North Texas office, about Frisco’s statistics in terms of labor. The average age in Frisco is 34, and 64 percent of all adults have a bachelor’s degree or greater. So it’s a natural place for people to go for labor. Frankly, access to labor is something that can help downtown, too. Increasing the multifamily base in and around downtown is bringing in younger, well-educated workers. And that’s what’s going to help with some of the downtown vacancies.
COOPER: I know, but a lot of companies are looking not only for labor during the day, but also at night. Bigger companies with more customer care centers and call centers are operating until 11 p.m. They’re looking at getting longer days out of their facilities, like they do in the northeasten U.S., where there’s fantastic transportation infrastructure and amenities. Here, we just kind of shut down.
YOUNGER: I think the other big winner next year is going to be the value office, heavily parked buildings. If you look out at Freeport, for example, I think you’re going to see a lot of square footage built out there next year, and it’s going to fill up. We’re tracking 6 million or 7 million square feet of deals just in that market right now. It’s also close to the airport. So they don’t have to move the entire company here. It’s like what Randy touched on. The CEO can fly in, come to the office and then get back out to the airport and be gone within a day.
SELNER: You’re 100 percent right about new construction. What we’re finding is tenants want quality. They’ll accept less space, more efficient space, but they want quality, in terms of product and efficiency, as well as environment and access to things. High-amenity areas with good quality product will be real winners. On the opposite end of the spectrum, you’ve got older buildings that have these big corridor areas that nobody knows what to do with. New building product, with slim corridors, super high efficiency, a lot of light—that’s what all the tenants are looking for. And we’ve now hit the point where tenants are willing to pay a little more in rate for those operational efficiencies.