In the current cycle, new office development has primarily been focused in the Legacy/Frisco and Uptown submarkets. Legacy/Frisco has secured a number of large corporate relocations and expansions, while most of Uptown’s new tenancy has come from Dallas’ central business district. Although this has caused vacancy concerns for downtown office buildings, the long-term outlook for the CBD is strong. In fact, we’re already seeing signs of the pendulum swinging back toward downtown, especially in the Arts District/Ross Avenue corridor.
So, what’s driving this?
Uptown has a vacancy rate that’s under 13 percent, or about 1.4 million square feet. Downtown has a vacancy of 24.3 percent and more than 6.3 million square feet available. Additionally, there are very few remaining opportunities for new office development in Uptown. Most of the sites have already been snapped up, with a good number of them going to multifamily developers.
Increased land and construction costs and strong demand for Uptown space have all combined to drive up lease rates north of Woodall Rodgers Freeway. In fact, office rents have grown by more than $10 per square foot since the recession hit 10 years ago, with some buildings breaking the $50-per-foot barrier. Most tenants are willing to pay the rates, as Uptown offers a highly desirable live-work-play experience and is a powerful tool in recruiting and retention, especially when it comes to millennials.
But that environment is now spilling over into downtown and the Arts District/Ross Avenue corridor, which is linked to Uptown by Klyde Warren Park. Many of the buildings along Ross Avenue were built with the finest materials in the 1980s and have “good bones.” Newer property owners are now investing millions to upgrade these beautiful buildings. I’ve seen this first hand at Fountain Place, where a $70 million renovation is underway. It includes a complete lobby redo and a new 10-story garage, anchored by four restaurants. Additionally, AMLI Residential is building a 45-story luxury apartment tower on the site. Also on Ross Avenue, Trammell Crow Center is making lobby improvements and adding a mixed-use high-rise that includes a 200-room hotel, and HALL Arts is adding a condominium and hotel tower. Argentinian steakhouse Corrientes 348 is going into the former Stephen Pyles space, and Tortaco has opened at 2100 Ross. Other major redevelopments extend from Ross Tower to the core of downtown Dallas and the emerging innovation district in the West End.
It’s important to keep in mind that Dallas is still a relatively young city compared to other major U.S. metros like New York City, San Francisco, Boston, Chicago, and Washington, D.C. It has some growing up to do, especially when it comes to public transportation and walkability. But things are headed in a positive direction, boosted by heavy investments from seasoned, respected property owners. One of the traditional arguments against downtown is the lack of parking. But even that objection is being addressed, with the construction of new garages at Fountain Place and other properties (and will one day be obliterated with the onset of driverless cars).
It’s exciting to see downtown Dallas mature and come into its own, and to see the mojo of Uptown spill over into downtown. It all adds up to more choices for companies looking to move and grow here, and a solid future for the city as a whole.
Lauren Napper is a senior director on Cushman & Wakefield’s agency leasing team in Dallas.