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Jon Altschuler: An Inside Take on Downtown Dallas

Interest level from investors is very high. Interest level from tenants is moderate. What will change this?
Jon Altschuler
Jon Altschuler

Here are the trends we’re seeing right now, in and around downtown Dallas.

• Interest level from investors is very high. Interest level from tenants is moderate. What will change this?  Look for the self-made set (companies whose decision-makers are spending personal dollars, not corporate dollars) to be the next wave of tenants seeking space downtown. They will recognize the value of the rental dollar, all the while benefiting from the region’s best amenity scene.

Restated, corporate tenants that see their rent go from $35 to $50 in Uptown and elsewhere can take comfort in knowing their other offices around the country pay more. Business owners paying rent with dollars that otherwise fund their families react to the same proposed rent increase by finding better value. That better value is south of Woodall Rodgers Freeway.

• It used to be you couldn’t talk about downtown without talking about parking. Now that’s only the case if someone instrumental in the process is over the age of 50. If you’re over the age of 50, you can’t get past the history you know and perception you have of downtown being under-parked. Under 50, you don’t care, and know that people will figure it out and accept a level of inconvenience in exchange for the authentic mixed-use walkable environment.

This is true for owners, agents, and users. And, keep in mind, the walkable environment that downtown already has is what every developer in the city is trying to create other parts of the region.

Class AA Uptown vacancies lease quickly ,even as rents surpass $50. Class B Uptown vacancies lease slowly as those rents near $30. Put another way, AA tenants are accepting of accelerated rents and B tenants are less so.

• Want a cheap downtown lease? They used to be available everywhere, now they’re only available in less than a handful of properties (where, in most cases, the capital stack hasn’t refreshed in years). The other towers that formerly competed on price now have new capital, which has pushed rates up at least 20 percent.

• Downtown operating expenses have been under control compared to most submarkets, primarily because taxes have stayed in check. In 2016, look for downtown tenants to express the dismay tenants around the city have been experiencing, as the tax man reassesses properties due to all of the high-priced building trades. Operating expenses are increasing fast—even in downtown.

We used to think the performance of trophies on Ross Avenue strongly correlated with that of trophies in Uptown. The last five years has demonstrated that’s really only the case for trophies on Ross Avenue with a rectangular floorplate, as opposed to Crow Center’s square-like one (and yes I know that’s technically a rectangle) and Fountain Place’s irregular one. Look for owners of these properties to consider market-adjusting their rentable factor down, thus eliminating the space-efficiency argument.

There’s lots to do and think about downtown Dallas in 2016. It should be an exciting year!