Experts Say Patience Needed for Dallas CBD Recovery

Deals are mortared in creativity, free rent and patience. The CBD's 25-year struggle to fill its high-rises won't be ending anytime soon despite a push to polish its image into a cosmopolitan star and return retail to the "bull's eye" of the downtown. Washington, DC-based Madison Retail Group, charged with finding retailers for Dallas' epicenter, tells GlobeSt.com to call back in a month. The first signing didn't come as planned at February's close.

Local expert George Roddy Sr. of Roddy Information Services says it's really a question of "which comes first, the chicken or the egg." The CBD, he says, has been muddling along without a pulsating retail heart for a long time although the need is obvious. Latching onto a sizable chunk of retail definitely would help, but isn't the cure-all and the flagship Neiman Marcus simply can't be the only retail magnet. Roddy also has taken a "wait and see" approach as to whether the "fear factor" from 9/11 will drive even more office tenants to high-rises in the suburbs.

There is no quick fix on the horizon, says Roddy, but he emphasizes that he's also seen worse days. The overall occupancy of 71% at the 2001 close was still 9% higher than 1995. Class A occupancy is holding at 87% and rent on the average is down just a tad, $21.18 per sf. Rent has always managed to hold its momentum even when occupancy hovered in the 60% range.

"It's all in the perspective," Ed Frieze, research director for Dallas-based Holliday Fenoglio Fowler LP, explains to GlobeSt.com. He predicts a mild CBD turn-around sprouting in the third and fourth quarters. This year won't be a banner one, but it will end on a positive note, he believes. Next year will be better and 2004, better yet.

The CBD, stresses Frieze, is maturing, investors are still looking and residential development is becoming quite alluring among the 135,000-member workforce, the majority of driving in from the suburbs each day. His hard-sell CBD enthusiasm revolves around a 36.1-million sf inventory that has seven million sf of class C product, half of which was built prior to 1930. The overall space count also contains four million sf of owner-occupied buildings. Those two factors, says Frieze, "makes the marketplace look much softer than it really is."

The class C category has been riding in the negative for the past decade, with the latest numbers showing 400,000 sf in the red for a product equating to 22% of the downtown market. Take out class C and occupancy rises to 82% at class A, B and owner-occupied properties, Frieze says. It looks even better if the microscope is placed on the AA product, the Top 10 buildings. Trophy occupancy is 87%, maybe even 88%, he says.

The optimistic Frieze contends the "CBD is well positioned to capture more growth on a go-forward basis." His formula includes the funneling of American Airlines Center to the tourist must-see West End and Madison Retail's success in signing newcomers for the city's heart. Thus, Dallas is headed in the right direction as it improves downtown security and expands rapid transit. The right economic drivers are in place and, Frieze emphasizes, the CBD isn't overburdened with hungry high-tech space takers.

"The downtown is in better shape than a lot of people realize," he says, "not that it doesn't have a long way to go. Dallas is maturing as a cosmopolitan city. How rapidly that will occur, I don't know.