Fort Worth office leasing flat, but new inventory coming onlineApril 28, 2014
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The market needs to adjust to the new tightening of space.” – Jeffrey Day, vice president, leasing and investment sales, Centra Partners LLC
A. Lee Graham
Fort Worth trails Dallas and Collin County when it comes to first-quarter office leasing, but hope shines between the lines of newly released market information.
“Occupancies have increased and rental rates have ticked up,” said Jeffrey Day, vice president of leasing and investment sales with Centra Partners LLC in Fort Worth.
As one of many commercial real estate professionals in the area, Day works with companies representing many industries but he points to one as particularly promising for future occupancy strength.
“The energy industry is a big driver of our real estate market and that should continue with the shale boom occurring in Texas and across the country,” Day said.
First-quarter numbers released by Xceligent Inc., a commercial real estate research firm, show that far North Dallas, the Dallas Central Business District, Las Colinas and Richardson-Plano are enjoying the quarter’s sharpest occupancy boosts.
A single tenant can make all the difference. For example, Santander USA made an occupancy splash by leasing 370,000 square feet of Class A office space in Thanksgiving Tower in downtown Dallas, while Kohl’s leased 115,641 and 114,420 square feet of Class B office space in Waterview Place 2 and Waterview Place 1, respectively, in Richardson-Plano.
The Fort Worth area’s largest increase in occupancy in the quarter occurred at The Hills Building 2 in North Richland Hills, where Portfolio Recovery Associates leased 44,667 square feet of Class B office space. Late last year, the company announced a new call center in North Richland Hills, bringing 200 new jobs to the area.
But the city of Fort Worth itself is missing from the first quarter’s top 20 largest changes in the occupancy list. What’s kept Cowtown from posting at least one major lease?
“I would like to think that there’s been a lot of tenant movement across buildings in the Fort Worth Central Business District,” said Brad Hauser, regional director of analytics for Xceligent, pointing to an active downtown market, albeit one with no single major lease in the quarter.
“That’s speculation over what I’ve seen in the last couple quarters: tenants moving out of our building and into the next in the same submarket,” Hauser said.
Downsizing or a need for smaller or larger office space can precipitate such moves, reflecting a growing trend that’s seen many companies not only with leaner staffs but within smaller spaces.
“The market needs to adjust to the new tightening of space,” said Day, adding that office space is tied to the unemployment rate.
“Companies aren’t adding space when they aren’t growing and-or adding new employees,” Day said.
Hauser offered similar observations.
“It’s not just in Fort Worth, but tenants are downsizing and now working in smaller spaces. It’s the modern work area. People are in [cubicles] or huddling in smaller work spaces, shared workspaces, that sort of thing,” Hauser said.
Embodying the shared workspace ethos is IDEA Works Fort Worth, the new business incubator that is offering 1,000 square feet of co-working space and 2,700 square feet of single-business spaces at 600 E. Rosedale St., the former James Guinn Elementary School. The incubator, developed by the Fort Worth Business Assistance Center Education Foundation, opened in January.
Despite such innovation, no single transaction caused first quarter occupancy in Fort Worth to skyrocket. But the city did enjoy a shot in the arm when One City Place gained a $41.5 million senior loan for capitalization and lease-up; PCCU LLC provided Spire Realty Group LP that amount for the vacant 313,953-square-foot Class A downtown office building.
For the most part, Fort Worth offered relatively little available office space in the quarter. Of its 11.2 million square feet of total office space, the city only had 1.3 million square feet available, for a 9.8 percent vacancy rate.
Of Fort Worth’s 1.3 million square feet of total available office inventory, only 150,074 square feet was available in Class A space, 965,404 square feet in Class B and 158,499 square feet in Class C, according to Xceligent research.
Of the Central Business District’s 9,621,743 square feet of total office inventory, about 806,991 square feet was available in Class A space, 426,579 square feet in Class B and 15,519 square feet in Class C.
The city saw 100,134 more square feet of total office space leased in the quarter while the Central Business District’s net absorption actually dropped by 10,356 square feet.
“We just added 6 percent [more space] to the Class A office market, so we’ve got room,” said Andy Taft, president of Downtown Fort Worth Inc., a nonprofit downtown advocacy group, commenting at a real estate conference in April.
While Fort Worth had no leasing transactions on the quarterly report’s list of 20 largest changes in occupancy, it did gain one entry on the industrial market list. Fort Worth made the list thanks to Cargill Cotton, which leased 562,500 square feet of bulk warehouse space at Westport Building 20 in North Fort Worth.
Dallas/Fort Worth International Airport in Grapevine had three on the industrial list.
Demand for industrial space is expected to accelerate, according to some observers.
“NAFTA [the North American Free Trade Agreement] provides growth, and as the Asian markets rebound and our country rebounds from the economic downturn due to increased demand for products and additional consumer spending, shipping via cargo and rail will increase, which increases the need for industrial space,” Day said.