Friday, February 20, 2015
Downtown Dallas rebound brings most office leasing since 1980s
Last year there was more office leasing in downtown Dallas than in any of the area’s suburban business districts.
That’s the first time in more than 20 years that downtown has been the top office leasing market in North Texas.
Downtown property owners and economic development officials see the surge in office demand as payoff for years of reinvestment in the central business district.
The downtown turnaround is bringing more residents and retail shoppers back to the city’s core, stakeholders say.
“I started my career in the central business district in 1987,” said Johnny Johnson, executive managing director with commercial real estate firm DTZ. “I don’t think I’ve ever seen a time since then when things have been as strong.
“With the continued success and growth of Uptown, the whole financial district has been affirmed and repositioned,” Johnson said. “New owners are coming in and making significant investments — and not just in office but in retail and residential.”
Office leasing was the big story downtown in 2014.
Net leasing downtown totaled almost 830,000 square feet, according to data from Cushman & Wakefield Inc. The central business district saw a bigger jump in office tenants than along LBJ Freeway (760,000 square feet), the Telecom Corridor (620,000 square feet), Las Colinas (550,000), or West Plano and Frisco (530,000).
In 2014, more than 80 businesses either entered new office leases downtown or renewed their current leases, said Phil Puckett, executive vice president with CBRE.
“There were over 1 million square feet of new tenants,” Puckett said. “I think it’s one of the best years I’ve ever seen in the central business district.”
Puckett said the largest office leases downtown in 2014 were by Santander Consumer USA Inc. (375,000 square feet), Omnitrac (325,000 square feet), EnLink Midstream Partners (157,000 square feet) and Invesco (50,000 square feet).
The sale and renovation of several skyscrapers has fueled the jump in leasing, he said.
“The new ownership that’s coming into downtown has been tremendous,” Puckett said. “That’s changed perspectives.”
M-M Properties, new owner of the 60-story Comerica Bank Tower, has signed 390,000 square feet of leases in the Main Street skyscraper, said CEO Ken Moczulski.
“New leases total approximately 100,000 square feet and include Preston Hollow, Southcross Energy, Quincy Biosciences and Hoque Global,” Moczulski said. “Comerica is taking another 25,000 square feet; they are continuing to expand.”
With new Uptown buildings charging more than $40 per square foot for office rent, downtown’s renovated properties are becoming more affordable in comparison, he said.
“There are a lot of people in Uptown that did leases eight or 10 years ago that are going to be in sticker shock when they go back out into that market,” Moczulski said.
Downtown already has a price edge for new apartments, said Jim Truitt, Forest City senior vice president.
“A new building in Uptown is $2.50 a foot, and downtown you can lease for $1.60 or $1.65,” said Truitt, whose firm owns four downtown apartment buildings. “A lot of people have gone downtown as a result of that.”
Truitt said about 500 residential units opened downtown in 2014 and 2,000 are in the development pipeline.
“All the buildings vacant downtown but one have a deal working for conversion to residential or hotel,” he said.
The best potential now is for retail and other uses that generate pedestrian traffic, Truitt said.
“That is the big opportunity for downtown — getting people on the street,” he said. “That’s what is important.”
Investor and developer Headington Cos. has almost single-handedly tackled the street life on Main Street with development of the Joule hotel, restaurants and new retail.
Headington is about to start construction on a retail building of almost 30,000 square feet at Main and Stone Place near Neiman Marcus.
“It will be a nice addition to the neighborhood,” said president Michael Tregoning. “If we can create the right kind of experience, you can get people down here.”
Tregoning said investments in projects like Klyde Warren Park and increased retail and restaurant offerings downtown are changing the environment.
“For a long time, the central business district was dominated by office space,” he said. “That creates a daytime environment but a very sterile nighttime environment.”
The influx of workers, apartment residents and shoppers brings new demands, Tregoning said.
“We need a coordinated and thoughtful traffic plan, and we need more parking,” he said. “Another limiter is the utility grid.
“On Main, Commerce and Elm streets, there has been so much more load added on the water and electricity that it’s going to be hard to keep up.”
Of course, downtown problems created by more workers, residents and visitors are good problems, according to John Crawford, CEO of the economic development group Downtown Dallas Inc.
“Downtown is becoming much less of a one-dimensional office center,” he said. “And I think that’s going to continue for the next few years at least.”
Steve Brown, The Dallas Morning News