DALLAS-Pent-up demand led to an active year in office leasing throughout the Dallas area, with the hot spots including Uptown, the so-called “Platinum Corridor” (the area along the Dallas North Tollway linking North Dallas at the southern end to Frisco and Plano to the north) and the Legacy submarket in west Plano. Tenants are on track to continue growth in 2013, not just in the hot submarkets, but in areas throughout the metroplex.
Experts tell GlobeSt.com that issues ranging from consolidation to relocation impacted the office sector the most during the past year – and these issues will not go away any time soon. In other words, “even given the confluence of an election and a poor economy, the trend was positive, especially in those specific markets,” notes David Quisenberry, Colliers International’s executive vice president, North Texas agency leasing. “Tenants have been more willing to make commitments earlier and to look at renewals rather than wait.” Adds Thomas T. Lynn, president of NAI Robert Lynn’s office division: “Most of the tenants have shed uncertainty and took the step to expand because their businesses demanded it.”
Some of the tenants made a huge splash when it came to expansion plans State Farm Insurance, for example, announced expansions in Richardson and Irving – and more recently, a commitment to KDC’s $1.5 billion development, also in Richardson.
“The overall market was positive for consolidation,” explains Steve Van Amburgh, CEO with KDC. “There were a lot of companies out there that did 200,000-square-foot to 500,000-square-foot consolidations.” Much of the activity also focused on law firms renewing and right sizing their space, as well as new banks coming into the region. “DFW seems to be the hottest market in the U.S. for consolidation and making operations more efficient,” Van Amburgh observes.
Sarah Erickson, managing director with Stream Realty’s office leasing group, also points out that, perhaps unsurprisingly, tenant activity has led to an imbalance in supply and demand. “We are absolutely moving toward a landlord market,” she notes. “We’re in the longest period of not having spec space being delivered.”
Interestingly enough, unlike Houston, the demand isn’t leading to an plethora of office building groundbreakings, though projects have been announced. Developers are being extremely cautious. KDC, which announced in early 2012 that it was planning a 400,000-square-foot project in Victory, a project in the uptown submarket, still hasn’t launched construction. Amburgh notes that the project need to be 50% preleased before construction commences, a provision echoed by many developers eyeing the DFW market for building.
This is not to say there is no speculative construction, however. “I think every good market right now has a spec building either under construction or close to breaking ground,” Lynn says. “We’ll see more of that happening in the stronger markets – West Plano, Preston Center, Uptown and Las Colinas.”
But Erickson notes that building spec is difficult in the region – financing isn’t necessarily flowing for projects that aren’t substantially preleased. But 2013 could be different.
“Hall (Financial Group) will have something going speculative first quarter,” comments Colliers International EVP Mary Stoner Yost. “Granite and Trammell Crow will have spec projects. And Randy Heady started one in Legacy – he says people have to see a building before they commit.”
The experts believe that 2013 will continue to be very active on the tenant side – but even with the announced projects, space is still likely to be tight. “The marketplace is starving for new class A product and it’s not there,” Erickson says. “The existing buildings will continue benefitting from the supply-demand imbalance.”