3. Las Colinas
The Carpenter family’s 12,000-acre ranch was one of the first masterplanned communities in the country. After the airport opened, Las Colinas became the perfect market for corporate relocations. It was an unbelievably ambitious development, and tastefully done. The Towers at Williams Square, shown below, became its trophy asset. When the bust happened, Las Colians took a hit. But with its central location and proximity to the airport, and with the ongoing development there, it continues to be a fantastic opportunity for corporate America.
4. Incentives Wars
Along with abundant land, North Texas has aggressive municipalities that compete against each other for corporate tenants and are willing to give incentives for jobs. It’s all about increasing the tax base. Municipalities realize that if they can attract the companies, it’s going to mean more home, hotel, and retail sales; the trickle-down factor is huge. For a long time, the bedroom communities would give tax abatements for new development. But things really changed when Frisco built its war chest. It opted out of DART and redirected its sales tax revenue to fund economic development. And it used that money to go out and attract businesses. It was able to be very, very aggressive in attracting businesses to Frisco—even giving cash—at the expense of neighboring cities. It was smart and progressive. Surrounding municipalities—Plano, Farmers Branch, Richardson, and others—realized that if they were going to compete, they’d have to do the same thing. Today, nearly every transaction we do over a certain minimum threshold involves incentives. It’s a huge factor and can become a real differentiator.
5. The Emergence of Tenant Representation
Before tenant representation, landlords would do direct deals with tenants. Some of the biggest landlords, including Trammell Crow Co., wouldn’t pay commissions at first. But after the market crash in the late ’80s, the company hosted a broker party on Harlan Crow’s yacht. It realized that instead of competing against the brokers, it needed to work with them. The real estate business really changed from that point forward. Tenant representatives were validated. We no longer had to worry about being recognized as a broker of record—or getting paid.
6. Connecting the Highway Dots
When a city is built, the main thoroughfares connect bedroom communities to the city’s downtown. That’s great when your downtown houses the majority of your office users. But in Dallas, when you have a market as large as we have, and suburban markets dominating the office market, you have to have beltways that connect them. These used to be Northwest Highway and LBJ. But you just couldn’t get from Garland or Richardson or Plano or Allen over to the Lewisville, Las Colinas-Irving areas. The lack of highway infrastructure was really hurting those markets. So the development of State Highways 190 and 161, and 121 thereafter, connected our city in a way it wasn’t before. They opened up access—and markets.
7. Consolidation of the Brokerage Business
Back in the 1980s, the real estate brokerages were boutique, local firms. There were some regional companies and a few national firms, but mostly it was a long list of small firms that would have one or two lines of business. Cushman & Wakefield was probably the largest national player. Grubb & Ellis bought Miller Cos., and there was this rollup period, where larger consolidators would go to a city and buy local firms and make them part of a national company. It really hit our market when CBRE bought Trammell Crow Co. and when Jones Lang LaSalle acquired The Staubach Co. Today, there are two or three global companies that operate in all service lines and dominate the business. There’s always going to be room for niche players, but it’s hard to compete with the global firms on big assignments. I believe the consolidation trend will continue and that there will be somewhat of a barbell effect: If you’re a smaller boutique with a specific area of expertise, you can do well. If you’re very large, you can do very well. But if you’re caught in the middle, you’ll get squeezed out.
8. Extension of the Dallas North Tollway
Legacy and Hall Office Park, and the population shift to the north, were the drivers for the extension of the Dallas North Tollway. Ross Perot, with EDS at Legacy, began the corporate campus movement. And when Craig Hall broke ground in 1997 on the first building at Hall Office Park in Frisco, there wasn’t even a paved road that led to the development. They’ve both become amazing success stories, and the Dallas North Tollway is among the most desired submarkets in the region.
9. Corporate Campuses and Build-to-Suits
In Dallas, there’s a unique confluence of available land in masterplanned parks, aggressive municipalities that are willing to offer incentives for jobs, and a stable of incredibly strong, experienced developers. There are also many companies that have come to see the benefits of being in their own facilities. These things have driven the corporate campus and build-to-suit business in North Texas. Here, it works. Other markets around the country don’t have the large business parks that we do. They don’t have the masterplanned communities and the available land that’s priced at a reasonable rate. During the past 30 years, total net absorption for single-tenant buildings in North Texas has been 61 million square feet. That’s unbelievable. Some of the more established business parks, though, like Las Colinas and Legacy, are reaching maturation and running out of sites.
10. The Densification of Office Space
In the mid-1980s, I was at a conference with Jerry Fults, and a speaker was talking about how the commercial development business was going to go away, because people were going to work from home. I left the conference scared out of my mind, thinking how I had just gotten into real estate and everything was going to change. It has taken 30 years, but today, the industry is going through a huge change in terms of how users occupy space. Some firms had done some office hoteling, and some large companies would let people work from home. But that didn’t really affect the office market. Now, though, investment banks, professional services, and every major law firm are taking a hard look at how they use their space. The densities have changed. People are working in neighborhoods, where they have lockers and get assigned workspaces, and they just plug in their laptops when they get there. Because of this, the buildings need to change, too. Whether it’s the parking ratios, the power supply, the heating and cooling—if your building can’t accommodate the new densities, they’ll struggle. A functional obsolescence we haven’t seen before will come to light, and it will be a situation of the haves and the have-nots.
11. The Rise of the Telecom Corridor
As the telecom boom got under way in the 1990s, companies flocked to Richardson, lured by the deep base of tech talent trained at Texas Instruments and Rockwell International. Samsung, Nortel, Ericsson, Alcatel, Cisco, DSC, Raytheon, Verizon, AT&T, MetroPCS, MCI, Fujitsu, and others became the backbone of the Telecom Corridor. But everything changed when the tech bubble burst. Richardson had millions of square feet of vacant sublease space, and the city realized it needed to diversify its economy. They’ve since done so. Richardson now has a large insurance hub, with Blue Cross Blue Shield, United Healthcare, Travelers, State Farm, and it’s also a hub for the mortgage business, with Bank of America and others. The city still has a deep tech and telecom base, but it has diversified into more mainstream, corporate America businesses as well.
12. Consolidations, Back-Office Operations, Call Centers, and Shared Services
The big corporate headquarters relocations generate splashy headlines and are great, but the majority of office moves in recent years have been consolidations, where companies take three or four locations and consolidate them into one place, and the big call-center, back-office moves into our market. If you look at office space along the LBJ extension, in the Freeport area, it’s tilt wall, large floorplate, densely parked space, which is perfect for these type of uses. For the foreseeable future, there is going to be strong demand for that type of value office space. Along with back-office and call center uses, Dallas is becoming the preferred location nationally for shared services operations, where IT, legal, accounting, and human resources jobs are being consolidated, not just by Fortune 500 companies, but by financial institutions, investment banks, and others. North Texas is always on the short list of markets competing for these facilities and jobs—and wins a very large percentage of them.
13. The Real Estate Service Business Grows Up
Whether it’s securing the business, or competing for and servicing the business, everything has changed. Technology has transformed the way we work, from research tools and databases to marketing materials and virtual tours. You could spend 100 hours in a car and not get what you could get on a computer screen in one meeting. The corporate user has gotten much more sophisticated, too. And they’re demanding a higher level of service. They’re also harder to connect with. A lot of the decisions have been consolidated at the corporate level, and they all have caller ID and can block calls. It used to be that the local branch manager was the decision-maker; the days of schmoozing secretaries to get on their boss’ calendar are behind us.
14. Solidification of Market Fundamentals
Between 2000 and 2010, Dallas added 1.2 million jobs. We are lucky to be in a state that is both labor and capital friendly. Other states are chasing companies away with regulation and taxation; Texas is attracting them. There’s no state income tax, there’s a favorable business climate, we have a diverse economy, highly skilled and educated work force, and a low cost of living compared to other metro areas. So when you’re in upper management, deciding where to locate, Dallas-Fort Worth checks all the boxes. There are 18 Fortune 500 companies based in Dallas. Fourteen of those weren’t here or didn’t exist in 1983. Whether it’s a corporate relocation or a back-office operation, corporate America has flocked here. And over the next 30 years, companies will continue to bring jobs here at the expense of other places around the country. Another factor: relatively speaking, office space in Dallas is significantly less expensive than almost any other major market in the country. It’s much less than Houston and Austin; I’d say about 25 percent cheaper, across the board.
15. Parking
A few years ago, when gasoline prices got up to $4 or $5 a gallon, there was talk that people and companies in outlying areas were going to come back to the core, because people couldn’t afford to travel long distances to work. No one knows what’s going to happen to energy pricing, but when the bulk of the office inventory is in the suburbs it would be hard to ever reel that back in. Either way, parking is going to continue to be an issue. Landlords will either be able to accommodate increased densities, or not. It will be a huge issue going forward.
16. The Suburbs Take Over
In 1983, the suburban markets basically consisted of the Stemmons Corridor, LBJ Freeway, and North Central Expressway. As Dallas grew and bedroom communities shifted northward—and northwest toward the airport—companies began pushing away from downtown, Stemmons, LBJ, and Central. It created new submarkets that today make up the bulk of our inventory. Today, 87 percent of our office market is outside of downtown Dallas and Uptown. That situation doesn’t exist in any other major market, except possibly for San Jose and the Silicon Valley area. The Dallas office market has tripled in size in 30 years. The Class A office inventory has increased 600 percent.
17. The Cool Factor
Tenants have changed the way they use space. And the type of space they want to occupy has changed, too. They want to have cool space. It’s not about opulence anymore. It’s about versatility. Tenants want spaces they can be proud of, but not over-the-top facilities. They want common places where people can connect. They want flexibility. Millennials are a big driving force behind this, as is, of course, technology.
18. Population Growth
Thirty years ago, the regional population was about 3.3 million. Today, it’s 6.9 million. By 2030, it’s expected to top 9 million. People move here for the jobs, and companies move here for the labor. Along the way, houses and apartments get built, stores get built, and the economy continues to expand. Research shows that the Dallas region can absorb the thousands of new jobs that continue to come in. Dallas is growing twice as fast as the rest of the country, and that will continue for a number of years.
