Fort Worth Edges Closer to 24-Hour Designation

"Fort Worth is going to grow at the expense of Dallas," Dr. John S. Baen, a leading economist and professor of real estate for the University of North Texas, told the 500 businesspeople at yesterday's only forecast meeting dedicated solely to Tarrant County and its metro star, Fort Worth. The downtown office sector is 98% leased in its class A stock and CBD retail is resting at 100%, city insiders acknowledged.

"Expect a couple new office buildings near or on the fringe of the CBD," Ben D. Loughry, managing partner in Fort Worth for the New York City-based Integra Realty Resources LLP, predicted for this year. As those plans unfold, oil and gas revenues pouring in from the Barnett Shale gas field are getting credit for Fort Worth's strong surge past its chief rival, Dallas. "There are lots of silent purchases in the market driven by the mineral income in Tarrant County," he added.

Baen, who closely monitors the Barnett Shale's economic influence, said oil and gas investments and real estate "are the only things to do to shelter income. You're sitting in the best place for both. Hard assets is where it's going to be for the next 18 months." In fact, there are now 11 counties set up to tap Barnett Shale resources, with 3,200 wells coming on line in the past 30 months. Just in Denton County, the two-year take from the drilling added $3 billion to the tax rolls, according to Baen.

"Many cities need to embrace drilling, with fewer restrictions," Baen said. "Oil and gas companies and activities in North Texas have become the most underreported and most important economic engine/industry in Texas." In line with that, he believes it's practically inevitable this year that one new regional and national oil and gas company will make a headquarters announcement in Fort Worth.

The office market lost 1.5 million sf in the third and fourth quarters of 2004 as buyers scooped up buildings for residential and retail conversions. The end result is the CBD has just two blocks of roughly 75,000 sf for a large tenant and the next largest spot of contiguous space is in the city's southwest sector, said Jim Eagle, president of the locally based Red Oak Realty LLC. The prediction, not by Eagle but rather the University of Pennsylvania's Wharton School of Business, is Fort Worth will be one of the Top 5 office markets in the next two years, with vacancy projected to dip to 1.7%.

"We're already seeing pressure on class A rates," Eagle said. By the fourth quarter, CBD office rates will hit an all-time high, $29 per sf, full service. Right now, downtown owners are getting $22.58 per sf on average for class A space.

The city's industrial sector, on the other hand, remains at the mercy of sellers and tenants, said Todd Burnette, senior vice president and overseer of the Fort Worth office for the Dallas-based Staubach Co. The year ended with a 12.3% vacancy although Burnette's predicting it will drop below 12% this year. Construction deliveries doubled 2003's new space, but it's still 300% under the 2000-02 boom. Absorption hit two million sf, but that's just half of the amount sealed off during the boom years.

Burnette's also predicting marketing times will shorten to 16 months from the 22-month average that clouded 2004's deal-making. Lower rates and more concessions will remain in the 2005 playbook. Amid the predictions, he believes sellers this year will end up paying taxes "because they've got limited options" for 1031 Exchanges.

Featured speakers James R. Harris, partner in a namesake firm that focuses on residential development, and James M. Makens, president of the retail group, the Makens Co., painted equally positive pictures of their respective arenas, with residential starts at an all-time high as retail hotspots cropped up in every direction.

"The city is being viewed as a 24-hour environment," stressed Eagle, who like others around town is developing a mixed-use project to help hasten the claim. Deep-pocketed capital investment, he predicted, will continue to flow into the city to strengthen the residential live, work and play environment.

"You're in the right place at the right time in the right city," Baen stressed. Mixed-use developments, particularly the Trinity River plan, "is a mega-deal that will change Fort Worth forever."

Yesterday's only negative at the Fort Worth Convention Center gathering hosted by Integra is the possibility that the Joint Reserve Base will be shut down by the feds, who are looking to close 66 bases. "This could be one of the largest base closures in our history and Carswell is not out of the woods," Loughry said.