from left: Phil Puckett, CBRE; Jeff Staubach, JLL; Sarah Hinkley, Peloton Commercial Real Estate; Bill Brokaw, Cushman & Wakefield; Lucy Burns, Billingsley Co.; Kathy Permenter, Younger Partners; Greg Langston, Avison Young; Craig Wilson, Cassidy Turley; Mike Ablon, PegasusAblon

Why the Dallas Real Estate Market Is Hot

Workers, companies, and investors are continuing to flock to North Texas.

North Texas has seen big up cycles before. But this time, things are different. Tenants aren’t tacking on extra space they don’t need. Lenders aren’t throwing money at developers. The market is seeing big expansions from existing tenants—and even bigger corporate relocations. So, what should we expect from the office market in 2015? To find out, we gathered nine industry experts for a roundtable discussion. Participating were Mike Ablon, principal at PegasusAblon; Bill Brokaw, senior director of leasing at Cushman & Wakefield; Lucy Burns, partner at Billingsley Co.; Sarah Hinkley, senior vice president at Peloton Commercial Real Estate; Greg Langston, managing director and principal at Avison Young; Kathy Permenter, partner at Younger Partners; Phil Puckett, executive vice president at CBRE; Jeff Staubach, managing director at JLL; and Craig Wilson, executive managing director at Cassidy Turley.

D Real Estate Annual: Let’s start by recapping 2014. Did the market perform better, worse, or about as you expected?

SARAH HINKLEY: At our firm, we were expecting about 5 million square feet in absorption, and we exceeded that by the third quarter. So that’s exciting for Dallas. 

GREG LANGSTON: State Farm’s lease at CityLine, followed by the Raytheon deal—they were a big shot in the arm for everyone.

KATHY PERMENTER: For the first time we’ve seen a bit of a landlord’s market in Dallas, which is unusual. We’ve seen rates rise, we’ve seen vacancy go down, and new development is not necessarily keeping up with demand.

CRAIG WILSON: I would echo that. The common theme is that demand has somewhat outpaced supply. It has done so throughout the year, and I think it will continue to do so.

PHIL PUCKETT: Just to give you a perspective of where things stand, Dallas ranks fifth in the nation right now in terms of overall real estate markets. Houston ranks first, followed by Austin, San Francisco, Denver, and then Dallas. We’re currently ranked ninth in the world on the investment side. From my vantage point, this is the best real estate market we’ve seen in a very long time. 

LANGSTON: Probably since the 1980s wouldn’t you say? 

“We’re currently ranked ninth in the world on the investment side. From my vantage point, this is the best real estate market we’ve seen in a very long time.”

Phil Puckett, CBRE
MIKE ABLON: Don’t say that. 

PUCKETT: A recent report from Pricewaterhouse said it’s the best real estate market Dallas has seen in 30 years. What’s different from markets of the recent past is that we’re not just playing musical chairs in terms of tenants just moving from one building to the next. New companies are coming in and others are growing.

ABLON: The trend line toward the “experience economy” is holding. It’s not just about absorption or rate. It’s about who’s coming and why. … For the last 30 to 40 years, people moved to chase the jobs. We now clearly have the jobs moving to where the people are—the creative teams, the talent teams, the technology teams, the more educated progressive work force. It’s a radical paradigm shift in the pattern language of this country, and that bodes well for Dallas.

LANGSTON: To dovetail on that, we’ve got a group out in Connecticut, a professional services firm. We looked at Charlotte. We looked at Salt Lake City and then Dallas. It would have been cheaper to go to certain areas, but the main driver was talent. So it’s going to be a little more expensive, but it’s $50,000- to $200,000-a-year jobs. The availability of space was a factor, but compared to what they’re paying in Connecticut, it was a no-brainer. 

D: Companies are moving here for talent; but how deep is the labor force? Craig, what are you hearing from state farm in terms of how their hiring is going?

WILSON: Their hiring is going very, very well. Mike makes a good point, but what we’ve also seen is that a lot of employees are wanting to move to Dallas with their relocating companies. There’s an attraction to coming to this part of the country—this city, in particular. In terms of labor,  there’s a great combination of college graduates—a strong post-secondary education market feeding the labor force. And, again, there’s a lot of people that tend to gravitate toward this area, you know, when looking for opportunities. So the labor force is deep and strong. 

D: That’s good to know. Okay. Next question for everyone: What do you find most surprising and interesting about current office leasing trends?

JEFF STAUBACH: Compared to the hotter markets in the past, the fundamentals are stronger this time. Companies aren’t taking an extra floor for no reason. Landlords aren’t building out $150-a-foot space, and offices are getting denser. This density presents a challenge when it comes to parking.

LUCY BURNS: We’re seeing some tenants becoming a little anxious and wanting expansion rights; they’re nervous about the lack of available space. We have a couple of spec buildings underway right now, and that’s a big thing. We’re also seeing a lot of consolidations, larger companies taking multiple locations and moving into one, or maybe having a campus with two or three buildings. 

BILL BROKAW: To me, expansion is the surprising thing this year. Companies are becoming more confident about the economy and starting to expand. They’ve holed up for a few years now, putting people in existing space, and they’re out of room. That demand for expansion space is driving up rents, with high-percentage growth in certain markets. We’ve seen a 32-percent increase in the Victory area over the last two years, and out in Las Colinas, at Williams Square, a 42 percent increase.

PENDULUM SHIFT: With demand outpacing supply in some submarkets, Phil Puckett, bottom, and Greg Langston say landlords are gaining the upper hand.
ABLON: We have these new words that are prevalent now that didn’t exist five years ago. “Walkability” is one. But it isn’t really about walkability. It’s about the notion of what it means to be in a walkable environment. And what’s fascinating is, I think it’s going to reclass what becomes an A or a B building going forward. It’s going to be fun to watch, but it’s also going to be incredibly confusing, because you’re going to have old school and new school. 

LANGSTON: The common denominator is that companies are more focused on people, which drives productivity and profitability.

STAUBACH: When it comes to space decisions, we all know that real estate is second in cost to personnel—but it is a distant second. So when you look at how expensive people are, you can pay more for space, but you know your people are not going to leave. If you move from Uptown to Legacy and your CFO decides to leave because, you know, that’s too long of a commute for her—I mean, it’s hard to replace people. 

WILSON: One of the interesting things along those lines is that’s really across all wage rates and employment levels. 

STAUBACH: I’m sure you saw it with State Farm. On the big ones, the real estate is like…

WILSON: Right. Previously, you know, a back-office job was a value office building with a surface parking lot and maybe a cafeteria. 

LANGSTON: A tree in the parking lot. 

WILSON: A Bowflex machine in the fitness center. But today, companies are looking to create the right environment, whether it’s a prestigious law firm or a back office for a service company. 

HINKLEY: The most interesting part of that, and what’s exciting right now, is there’s a deep pool of tenants willing to step up to that rent. Five years ago, we were predicting that the high water mark would be $50 a foot in Dallas. Now we’re there, and we’re going to exceed that.

PUCKETT: Vacancy rates are falling. If you look at Uptown, it’s less than 11 percent vacant. If you look at North Dallas, less than 15 percent. Las Colinas is less than 17 percent. The rise in rental rates—I’ve never seen anything like it in my career, ever. But what’s also interesting is the new construction. Our CBRE numbers show 7.5 million square feet of new construction. But when you dive into that, there’s only about 4 million in spec construction, and 34.7 percent of that has been pre-leased. So that leaves just 2.6 million square feet of speculative product citywide. I could take a million of that right out of Uptown that is probably going to be spoken for when it hits the market. 

ABLON: If you go back and you track the last three or four recessions, the pattern language out of each of them is actually very identical in that the first construction was at the bottom end of the product line. And as the cycle gets deeper and more mature, the quality builds up. In this cycle, it was actually the opposite, with the cost of construction being so high. There was a natural governor on it for the first time. So the product that came out was actually at the top of the food chain, not the value-add. Typically you’ll see a two-story tilt wall and then a brick, and then it works up. This time the first things you saw came out were Class A and Class A+ and Class AA buildings. The new buildings at the top pulled up the market and pulled up rates. It has been a very atypical recovery. 

PUCKETT: Good point. 

LANGSTON: But you had developers that could get the debt. You didn’t have nonrecourse; back in the last cycle you could go out and get that …

STAUBACH: Just show up with a rendering. 

LANGSTON: Yeah. Here’s 10 million bucks. 

PERMENTER: Another trend has to do with the interiors of office space. It’s getting so much more creative on the inside. Even though they are packing people in a little bit more densely, companies are opening up the break rooms to the rest of the office, adding entertainment areas. They want that creative space inside. The most successful buildings right now have some sort of cool factor to them. 

BURNS: Yeah. People are getting really packed in, but when you walk around their space, you don’t feel claustrophobic. The other thing we’re seeing a lot of, at least on our existing product, in a lot of cases the vacancy we’re getting is because people are leaving to go build their own campus. That’s a new trend of local groups wanting their own building; we haven’t seen very much of that until recently. 

LANGSTON: The common theme, though is—much like 1999—it’s a landlord’s market. When you’re looking at space, you don’t know how many people are looking behind you. It’s not a dot-com thing anymore. It’s a legitimate business, versus what we saw in the late 1990s.

D: What about all of the mixed-use development that’s going on? There are so many big mega-projects. CityLine is its own city. You’ve got Cypress Waters, the new Cowboys Headquarters Complex in Frisco. What’s driving that? 

STAUBACH: I think there are two things: What Mike said earlier, the walkability—if the building across the street adds those amenities, then you’re going to have to do it, too. But you also can diversify your risk on a project. If you’re going to put $50 million of equity into something, some apartments that you know are going to get to 80 percent or 90 percent, you’ve got restaurants where you can get $30 or $40 per foot triple net and make it all work, then you don’t have as much risk. 

BURNS: If you have the residential and you have the office, then you know retail will work or will come. Having that mix of nighttime and daytime is really essential for retail being successful. 

MIXED-USE MANIA: Both residential and office components are essential for retail to work in masterplanned developments, says Lucy Burns, with Mike Ablon.
HINKLEY: That’s how companies recruit and maintain. If they’re all competing for the talent that’s just out of school, the 20-year-olds that want to walk to breakfast or lunch and have a nightlife after that and live as close to it as possible. Dallas used to be so siloed, but we’re seeing mixed-use development and filling in the cracks. It’s not just downtown and Uptown. It’s everywhere.

BROKAW: Our growth in population is what really drives it. We’ve had a 25 percent increase in population since 2000, and are expected to have 2 percent annual increases thereafter until 2019. In Uptown, multifamily developers are developing up all of the sites. Obviously the demand is there, because the young folks and the new-to-market folks want to live in the Uptown area. It’s pushing multifamily developers to the west and east of Uptown. And, again, that’s going to spur on the retail. Then it will go over from the Design District into Trinity Groves. It’s expanding the Uptown market and creating even more opportunity. 

PUCKETT: That’s a great point. And rents on the multifamily—a developer the other day said they’re already leased up at $2 a foot and they’re getting $2.75 a foot. It’s insane. 

LANGSTON: We’re starting to track residential. When I got in the business 25 years ago, you always heard that office trailed the rooftops. Just look what’s happening to the far north. In Frisco, Little Elm, Celina, Prosper. You’re talking about billions of dollars and thousands and thousands of rooftops that are going up there. We’ve got the highest spend on highway infrastructure in the country. So I see the filling in of the cracks, but there’s also the “barbell,” (with a big center of activity in Uptown and dowtown Dallas and another in Plano/Frisco and Far North Dallas). You’re starting to hear more about that Hwy. 380 and the Tollway, too. Ten years ago, that was farmland. 

WILSON: Going back to mixed-use, it’s really the result of a maturation of the region. I grew up in the Chicago area, which is an older market than Dallas, and that’s an area where you can be self-contained and live and work in a suburb, and going into the city is a big experience. I think that’s starting to evolve in this region, and the mixed-use developments are going to support that type of lifestyle. 

D: Well, even a lot of the new office projects have retail components now, and some residential. It’s vertical mixed-use. Talking about new construction, how is demand pairing up with supply, and what’s the outlook? 

STAUBACH: In Uptown, I think you can argue that supply is not going to keep up with demand. Our existing clients that are in the 5,000- to 15,000-square-foot use that need another 2,000 or 3,000, it’s just gone. It’s not there. It used to be you’d have a floor below or a floor above or maybe a suite adjacent to you, but we’ve got clients all through Uptown where they have nowhere to go. 

ABLON: If you’re going to build in this market, land is very expensive, and very limited. Construction is very expensive because it’s very limited. And, therefore, you’re building at the top of the food chain, the top of the price point. And a lot of what we’re talking about is your middle market, middle America firm. To get that type of expansion Jeff is talking about, you don’t have product that’s going to come online because the price point is very high.

PUCKETT: So they should go to Ross Tower. 

“For the last 30 to 40 years, people moved to chase the jobs. We now clearly have the jobs moving to where the people are.”

Mike Ablon, PegasusAblon
ABLON: They should. But what you see, the greater absorption of the new product has actually been to existing …

LANGSTON: Professional services firms. 

ABLON: … tenants that are going from 50,000 to 35,000 square feet, using creativity to put things together in a more efficient way. But it also has to do with the changing workforce. It used to be one admin for every lawyer. Now you have one admin for five lawyers. You don’t have a law library. There’s this thing that’s called the computer that hides it all. So they’re going to go for the same total cost and to less square footage in a more expensive building. So what Jeff is saying about supply not meeting demand, is because the supply that’s coming on is really limited to a very high price point. 

HINKLEY: But it’s all relative. The tenants that want to be in the top building in the nicest market in Dallas, they’ve got offices in San Francisco and Boston—the triple net in Boston is $80 a foot. So we’re still less expensive. And then the other tenant is the one that pays to be there. They can go look on Central or downtown, but if they live in Highland Park, if their homes are close, they’re going to pay the freight. So I think the absorption is going to reflect that, because we’re still less expensive than the alternative markets. 

BROKAW: Going back to the numbers, if tenants get more efficient, which a lot of folks have done in new product, then you equate the rate, it’s almost identical to what they were paying in an older building. These folks are saying, hey, this makes sense for our employees. This makes sense for us. It’s a better parking ratio. And, if you look at an accounting firm, for example, the cost of replacing one employee is two times their salary. So, again, it’s all about keeping the people you have.

PUCKETT: I think you’re going to see continued demand in Uptown, whether the space is there or not. And you’re still going to see this migration from the core partly into Uptown, particularly in the professional services firms. Look at Crescent’s new building at McKinney and Olive—that building will be full before its doors ever open. And the next behind it is the new Metropolitan Life Trammell Crow development at the Chase Bank site, which is going to be stunning. That project will be a 495,000-square-foot office tower with a 312-unit apartment tower. I predict that will be full, too, by the time it comes online in 2017.

ABLON: But you’re not going to go past Preston Center. 

PUCKETT: The demand is going to filter out to Victory and the Arts District. Craig Hall’s new building, KPMG Plaza—will be full before it opens. The other big factor is Klyde Warren Park. Rental rates for buildings on the park have increased by more than 60 percent during the past two years. And even off the park, going back to Ross Avenue, those buildings have seen about a 30 to 34 percent increase since the park opened. It isn’t all about the park, but the park has had a huge impact of this whole area. 

LANGSTON: One of the selling points of the park was the connectivity for downtown Dallas to Uptown. But how deep does it go? The old Main and Elm buildings; you’ve got some dense users flocking in there. But how deep does that connectivity go, in your mind? 

PUCKETT: I think the park is going to help even the core of downtown. 

ABLON: Ten out of 10 people would have said the same thing about Klyde Warren Park before it was built: They would have said it’s going to do a great job for downtown, tying it into Uptown. But if you look at it, the greater benefit has actually been for Uptown. It has helped Uptown hit a level that it hasn’t previously achieved, and that, in turn, rolls over and picks up downtown. It’s not the way it was perceived, but that’s the way, in my mind, it really works, and that’s a very good thing. 

D: But there’s no land left in Uptown. 

STAUBACH: It just has buildings on it. 

BURNS: Encumbered by buildings. 

LANGSTON: And it’s a former residential neighborhood. The ingress and egress—that’s a whole different discussion of getting in and out of the parking garage at 5 p.m.

STAUBACH: Think about what Robert Shaw, when he went down there in 1991, we thought he was nuts. I remember Uptown Village—I actually worked construction for Robert on The Worthington, but the other side of the street was not a nice neighborhood, and then Robert took it over. He single-handedly increased the property values in Uptown—who knows what the number is. 

D: What about all the redevelopment work that’s going on in downtown? What kind of impact is it going to have on the office market? 

ABLON: I sound like a broken record. Jobs are following people. People are no longer following jobs, not the type of workforce that one really wants, the technology, the entertainment, the experienced economy, the more educated. So any time you build your experience, you have a better chance of recruiting the people, and the jobs will follow the people. So what Tim Headington is doing downtown—kudos to him. You could draw an analogy to what the Bass Family did in downtown Fort Worth. The more you invest in experience, the more people will want to be there. It’s no different than what we did in the Design District.

PUCKETT: New owners are coming in and improving their buildings. Look at what Cousins has done with 2100 Ross. Mike figured out long before others that parking downtown was going to be a critical item. That’s going to play a huge role in downtown’s recovery. 

STAUBACH: Parking is important. I think one of the reasons Trinity Groves is so successful, is you fly over that bridge and you park and walk right up to one of the restaurants. There’s no trick to it; it could not be easier. 

INVENTORY ISSUES: For companies that have an immediate need, a lack of available office space could constrain growth in 2015, says Sarah Hinkley, with Craig Wilson.
ABLON: Or stated another way, we are now at the cusp of reconciling a young city, which is a two-car post-World War II city, morphing it into a bit of an urban environment, where you have more of a mass transport and walk. That’s not an easy transition. You don’t just turn a switch and toggle it from one to the another. Cities like this will take, you know, 20 to 50 years to reconcile that gap. 

STAUBACH: But you’re not going to walk from Preston Hollow to downtown. Fifteen to 20 blocks in New York, people do it. But the problem is, we are so spread out. You might think this is crazy, but I think Uber is going to help Dallas, because you can get downtown. 

ABLON: Going from a two-car post-World War II suburban city to a mixed urban suburban city takes exactly what you said. It takes Uber. It takes the bicycle. It takes the walk. It takes mass transit. It takes the parking garage. And if you have these buildings and no garages, they will fail. Mark my words. Because if you have three-per-1,000 parking, you still have to have two per 1,000 that are on mass transit. It is fun to watch Dallas grow up. You talked about Chicago. That’s a 300-year-old city. Fundamentally, Dallas came of age in 1936 and 1937. So we’re an 80-year-old city, if you really want to look at it. We have a lot of growing up to do.

LANGSTON: We’ve got to get rid of the tunnel system downtown, which takes people off the streets. And, when the Texas Rangers’ lease comes up, if you put a stadium down in the Farmers Market area or somewhere in the core, you’ve got 85 to 100 events per year. You’ve got supporting retail, you’ve got multifamily. This is a bigger discussion, but the city has to step up.

PERMENTER: You’ve still got the barbell. You’ve got the young people and the older people moving downtown. It’s not necessarily people with kids. 

WILSON: I was talking with the principal of a company ealier this year. He said a couple of times he was recruiting younger employees who weren’t from here who were living downtown without cars. 

STAUBACH: They’ve got a horse. 

LANGSTON: And a stable out in the country. 

PERMENTER: Actually, we’re seeing that as a trend. Younger people do not have cars, and they don’t want a car. At Republic Center we’re right on the DART line, and a huge percentage of people use DART to get to that office building.

LANGSTON: In Uptown, the young guys and gals in our office, they don’t drive on the weekends. They’re going to a local pub in Uptown, walking or Ubering it. 

D: So we’ve talked about Uptown and downtown. What are some of the other submarkets that will see a lot of activity this year? 

STAUBACH: The barbell, like what Greg said. Who would have thought that you would have rates in Plano that rivaled the Crescent, and that’s where they are. 

LANGSTON: $35, $38 a square foot. 

BURNS: Yeah. 

STAUBACH: That market is going to be hot with Toyota, with FedEx, and the others that are circling. We’ve heard all kinds of different numbers from Raytheon, State Farm, FedEx, of what the actual number of people is. And we’ve heard [the ripple effect] is actually as high as three or four per job. So a spouse, kids, the lawyer that comes in that’s going to work on it; the ad firm that CB is representing is going to come in. You start adding 10,000 jobs and you add 30,000 people.

“In Uptown, I think you can argue that supply is not going to keep up with demand. … We’ve got clients all through Uptown that have no room to grow.”

Jeff Staubach, JLL
LANGSTON: I second that. I think Legacy and the Frisco market—there’s just a lot of velocity up there, that north end of the [barbell], which ties into the rooftops and other projects. Look at Nebraska Furniture Mart, 1.9 million square feet. The Colony won that, but it’s going to improve that whole State Highway 121 corridor going back to the west. You’ve got the connectivity to the airport, and everything Lucy [Billingsley] is doing at Midway and State Highway 190. 

ABLON: So we’ve spent a lot of time talking about a small subset of who we are. We spent a lot of time talking about a group set that probably went to college, probably between 22 and 35 years old, and they represent a growing part of the workforce. But interestingly, nobody at this table fits in that subset. And we’re important, too. And I mean that quite genuinely. And we made the bet on the dumbbell—I don’t like that word, the “dumbell strategy.” But I want the experienced economy as much as that 25-year-old. Now I happen to be married and have two kids. So I have a different set of needs and requirements and desires. But I also am buying into the same notion.  And interestingly enough, that constituent might find it at the crossroads of the Tollway and 121. That group is looking for the same thing these younger ones are looking for in Uptown. They just have a different set of criteria. And later, when their requirements have changed again, this time they’re coming back down here. It isn’t just a constituent that’s 22 to 35 years old. It’s a much broader, deeper subset. 

HINKLEY: I think we’ve spent the whole conversation talking about the three best markets, which are Uptown first, Preston Center, and Legacy, just based on where the rates are. But Las Colinas and Richardson—you’ve got to give credit to those. Las Colinas follows corporate America. The economy is great. Job growth is up. How many expansions have been done at Williams Square with existing tenants? We’ve seen a lot of rent growth. And the bet that State Farm made on Richardson, we’ve since seen a lot of ’80s buildings lease up to really dense users. So the growth follows the tollway, but we’re seeing a lot of positive activity market-wide. 

BROKAW: Las Colinas is still one of the most centralized markets in the city to attract Southlake, Fort Worth, and all the suburban cities. You can get to 4 million workers within a 30-minute commute to Las Colinas, which is huge. The vacancies are going down. It’s at about 15 percent overall, which is no slouch. Rates are going up, and there’s a lot of room in Las Colinas for more increase in rental rates. 

LANGSTON: You guys have record rates at Williams Square. At 909 Lake Carolyn, you have new ownership coming in there raising rents. 

BROKAW: You’ve got the Music Factory and Water Street developments that are beginning, and that’s something that’s going to continue to build that area. Going back to Frisco, I think the folks at the Frisco Economic Development have it right. They’re very methodical in how that city is developing; they’re putting together infrastructure and doing the schools right. They’re doing smaller schools and smaller classes. That’s what people are seeing, and that city is thriving because of that. 

LANGSTON: That’s the elephant in the room for the core of Dallas versus the suburbs: schools. 

BROKAW: It’s not about being 6A. 

LANGSTON: Las Colinas has always been a corporate market, but it’s Monday through Thursday and you’re gone or you’re popping on a plane. Or you’re going back to Southlake, or into North Dallas or Park Cities. There are some apartments there, but I think it’s going to be interesting to watch this Music Factory to see if it really sticks. With the city amphitheater, music, Live Nation signed up to book. So that’s a pretty good checkmark right there because you’re going to have some decent acts going on. I think that should help. You can raise rents out there. 

D: Alright. Let’s close with the general outlook question for 2015, and where the greatest challenges and opportunities lie. 

HINKLEY: I think the rent growth trajectory is on point. We’ll see probably another 10 to 15 percent rent increase in 2015. But like Phil was saying earlier, we’ve got 7 million square feet under construction, and I think 60 percent of them deliver in 2016. So if something pops up with an immediate use, there’s limited vacancy, and where are they going to go? Who can provide the parking, the walkability, everything that we’ve been talking about? So I think it’s going to be a constrained outlook for 2015. There might be a few Band-Aid situations. 

PERMENTER: The biggest challenge will be dealing with the disappointment of the tenant rep brokers. Because the spaces they’re looking for are going to be gone. 

LANGSTON: Managing expectations. I would agree with that. 

ABLON: I think companies are going to continue to chase the people, and the people are going to continue to chase the environments that give them the resources or the experience they’re looking for, whether that’s in Frisco, Plano, Las Colinas, or in downtown or Uptown or Preston Center. We haven’t talked about the Galleria. We’re going to see that happen. It’s going to come back in there because it has the setup for it. So, will we also continue to see trends that put single-tenant buildings in a dislocated manner outside of that? I haven’t heard anybody answer that question yet, but I think it will be interesting to watch. Because what we have seen is most of those companies actually inverting. You know, part of why State Farm came to where it went wasn’t to build the old-style corporate building by itself. It was actually the opposite. It was to try to find where they could stick their corporate campus inside a city environment that was simultaneously built around it. It’s kind of obvious when you think about it what they were doing. It will be interesting to watch that as CityLine develops. 

LANGSTON: One thing on my end would be some of the discussions we’ve had with investors. Look at the buildings that are changing hands and some of the record prices that are being paid. I think buyers are looking at Dallas in a different way. Dallas is changing for the better. 

HINKLEY: Dallas is a very opportunistic market. There are going to be a lot more REITs because of the price creep on the capital market. 

ABLON: And the reason they’re coming is because they have a sense of permanency. A gateway portal city has a permanency just by the natural fact it’s a gateway portal city. And Dallas, being that it’s here just because it wants to be here and for no other reason—it has to have a sense of permanence.

LANGSTON: The theme there is supply and demand. So the demand is the people that are moving here, the rooftops, the apartments. But then what is the supply? So they basically are investors. So they’re looking at how can we improve on the price, and that’s driving rents up and concessions down.  

PUCKETT: Thinking about the greatest challenge in 2015, Kathy mentioned managing expectations for your clients. That’s the hardest thing right now, because we’re seeing an unprecedented increase in rental rates. Second to that is the lack of good Class A product. And even though we have some new product coming online in these markets, the biggest challenge I see is educating tenants that they need to be out in the market sooner rather than later, because they’re about to face sticker shock. The last thing I would comment on is the biggest challenge for brokers, and that is to know your market. The days of being a generalist as a broker are over. And second to that, you better know what the shadow product is out there, if there is any.

STAUBACH: I have a client at Preston Center, and the rents on his proposals are only $2 more than what he’s currently paying. But the problem is, it’s triple-net rent. So it’s going to add up to a $12-a-foot difference. 

D: Do you think we’ll continue to see more corporate relocations? 

PERMENTER: Absolutely. 

HINKLEY: Absolutely. 

STAUBACH: I get contacted from other JLL offices two or three times a month, companies that are at least kicking tires. They don’t all end up here. They might just be getting rates from all the usual suspects. But, yes, I think we’ll see more. 

D: We talked about companies getting more efficient. Are they also growing? 

STAUBACH: Yes. 

BURNS: Yeah. 

D: Okay. So that’s driving activity as well. Any other big things that could affect the market in 2015?

BROKAW: The DART rail extending to Dallas-Fort Worth International Airport is huge. And just to kind of gauge that, I had a flight last Thursday, so I took DART rail just to try it out. 

HINKLEY: Practice what you preach. I like it. 

BROKAW: I got on at Victory. I left my car there. 

PERMENTER: How long did it take? 

BROKAW: It took 39 minutes, because I timed it, to get to Terminal A. And it cost $2.50.

BURNS: How much does it cost to leave your car at Victory? 

ABLON: About $32.50 a foot. 

BROKAW: Right. I have an office there. But you can take it from wherever you want. 

STAUBACH: There’s another thing we didn’t mention—the end of the Wright Amendment at Love Field is pretty big news, because now you’ve got the two airport options.

ABLON: I don’t think anybody could imagine Chicago with one airport. I don’t think anybody could imagine in New York or L.A. with just one either. Dallas is at 6.4 million people. We’re going to be at 9.1 million by 2025. It’s just a part of what a big city has.

HINKLEY: I don’t think we can picture, though, what it’s going to do for the area. All the Dallas families are buying the land up around Love Field, and we just did a 100,000-square-foot lease nearby at Trinity Towers. Dare I say it might help the Stemmons market?

BROKAW: And couple that with what’s going on in the Medical District. The land prices, the cost of doing business, it’s going up. That helps everything down Harry Hines and Mockingbird. 

HINKLEY: We had 20,000 square feet of absorption in that submarket in the third quarter. They haven’t had rent growth or absorption in years. 

STAUBACH: It’s going to be interesting to see. I’ve got to go to D.C. and New York in a couple of months, and my first choice is to go out of Love. And I’ve actually been a fan of American.

ABLON: That’s good because Bill is taking DART. 

BROKAW: That’s right.  

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