Some Large Office Deals in Dallas Hit Stumbling Block

The squeeze on space has building options down to five for shoppers of 30,000 sf or more, says Cynthia Jeter, research director in Dallas for Cushman & Wakefield of Texas Inc.. "What that's telling me, as we've always known, is that class A downtown is very competitive and does very well," she says after running the numbers for GlobeSt.com.

There's an 80,000-sf newcomer looking around, as is a 170,000-sf Uptown law firm looking to relocate. Another 180,000-sf request most likely will drive a shuffle within the bricks to hold onto the longtime customer.

"There are options, but in class AA product there aren't many options," says John Zogg, senior vice president of asset management and leasing for the Fort Worth-based Crescent Real Estate Equities Co., owner of more than five million sf of top-tier space in the Dallas CBD and Uptown submarkets. "It's (office leasing) has been inching up, but everyone is being caught by surprise," he says. In-migrations are reappearing after a long hiatus, coming to town in the midst of an uptick as existing tenants heed brokers' advice to do deals now.

"I've never felt better in my entire career about the prospects for downtown Dallas," says Zogg, a member of a handful of organizations focused on an inner core revitalization. "All the efforts are starting to pay dividends...This is exactly what happened when we started the turn from the last downturn."

Bret Bunnett, president of Capstar Commercial Real Estate Services in Dallas, takes the "contrarian" approach to the numbers. He stresses there are plenty of options around town, particularly for tenants willing to look at "class A alternatives" rather than eyeing just trophies where space has been tight for five years. If a large tenant has to be in the Dallas CBD, the reality is that it's not going to be a trophy asset. But, he says, "there are other quality locations in the CBD, with good architecture and landlords that desire to build out for quality tenants."

Renaissance Tower, Bank of America Plaza, Bank One and Thanksgiving Tower all have large class A blocks to fill. "I think for a relocation considering Dallas that there are still viable options," Bunnett stresses.

Bill McClung, C&W's senior vice president, says he likes to point out the benefits of the class A alternatives to clients set on a CBD or Uptown address. "There is plenty of functional space. It might not have the glitz that other buildings have, but they're darned good buildings," he says. "It's all in the eyes of the beholder." Alternative addresses and knowing what shadow space can be had are the solutions for tenants looking to land in either submarket, he says.

Jeter's numbers show there are 27 building options for the 25,000-sf to 35,000-sf user in Uptown and downtown, but it drops to five for the next size user and then to two, Trammell Crow Center and Chase Tower, for 50,000 sf or more. "I was really surprised," Jeter says of the outcome of the numbers check. Thanksgiving Tower has a 300,000-sf block on the sublease market through 2005 even though records show it's still occupied.

Space can be had, Jeter says, but these days many class A building owners would have to shuffle tenants to hook a significantly large deal. At the 2003 close, Uptown's premier product was 85% occupied and downtown's 88.7%. "What that tells me is if you're a large tenant downtown and that's where you want to be, you're not going anywhere," she says.