At end of 2010, one thing was clear, Far North Dallas, specifically the Upper Tollway/West Plano submarket, was on fire. It was the top-performing submarket for the year, with 827,531 square feet of positive absorption—more than three times that of its nearest contender, Las Colinas, which had 238,587 square feet of positive absorption. In fact, the Upper Tollway/West Plano submarket accounted for about 80 percent of the year’s total positive absorption of 1.1 million square feet.
So when the first quarter 2011 numbers were released, I immediately looked to the Upper Tollway/West Plano submarket, which posted an impressive gain of 418,428 square feet. I then began to search for the next best-performing submarket, only to find that Upper Tollway/West Plano wasn’t the leader. Instead, it was Richardson—yes, Richardson—in first place, with 751,959 square feet of positive absorption. Richardson nearly accomplished during the first quarter of 2011 what Upper Tollway/West Plano accomplished in an entire year. How did this happen?
First, Fossil’s consolidation removed one of the largest blocks of space in the area—the former 535,000-square-foot headquarters for Blue Cross Blue Shield at 901 S Central Expressway, which KDC purchased in conjunction with being awarded BCBS’ 1 million-square-foot headquarters build-to-suit in Richardson. As part of the Fossil deal, KDC agreed to purchase Fossil’s three buildings, totaling 400,000 square feet. This new vacancy will show up in the statistics as negative absorption when Fossil moves out of the three buildings later this year.
Second, companies in Upper Tollway/West Plano have limited options and are literally fighting over spaces, causing tenants to look in surrounding submarkets. As larger tenants gobble up the remaining blocks, some smaller tenants (50,000 square feet and under) have been bumped from availabilities two and three times before securing office space.
Corporations continue to locate their headquarters in Legacy. EnCana is moving from the Quorum/Bent Tree submarket to the Legacy area, occupying a 300,000-square-foot building being developed by KDC. Pizza Hut also moved from Quorum/Bent Tree into a 178,000-square-foot build-to-suit, developed by Trammell Crow.
Currently, the West Plano/Upper Tollway submarket offers 13 blocks of space that are 50,000 square feet and larger, with just six of those blocks in the much sought-after “Legacy” subset. Richardson has 18 blocks of space that are 50,000 square feet and larger. Furthermore, the Upper Tollway/West Plano submarket quotes rates that are 20 percent higher than Richardson.
So what does all of this mean for the market? To me, two things. First, I believe a new multitenant building in the Legacy area will be announced in 2011 due to the shortage of supply. Tenants looking in that area are running out of options, and Dallas likes to build. With a seemingly endless supply of land creating a low-cost-barrier to entry, who wouldn’t take advantage of the development opportunities in this booming submarket?
Second, tenants will get priced out of the Richardson submarket As space in Richardson continues to get snapped up, owners will raise their lease rates. The quoted rate difference between Upper Tollway/West Plano and Quorum Bent Tree is only 10 percent (compared to the current 20 percent differential between that area and Richardson). When Richardson rates rise to equal to those in Quorum/Bent Tree, which has a closer proximity to the highly desirable West Plano submarket, tenants will shift their focus to Quorum/Bent Tree.
