Office Construction Pipeline: Nearly 60 Percent of Space Already Spoken For
The crane continues to fly as the (unofficial) state bird of Texas. That’s especially true in Dallas-Fort Worth, where more than 7.7 million square feet of office space is under construction. Unlike previous development cycles, though, this boom seems to have an especially sound foundation.
As JLL points out in a recent construction pipeline report, North Texas has an incredibly diverse economy. Energy isn’t a key driver like it was in the 1980s and 1990s. Demand is coming from a wide variety of users—insurance companies, global manufacturers, defense contractors, retailers, and professional services firms.
What’s more, single-tenant build-to-suits comprise nearly half—48 percent—of the pipeline. Another 10 percent are spaces that have been preleased by tenants. Those are numbers even lenders would love.
According to the researchers at JLL, “this level of preleasing is a solid showing and does not suggest that our market is overheated. What’s even better, this economic cycle still has legs, so we expect rent gains to continue, even though vacancy may begin to drift up gradually in 2016.”
As large space users take occupancy, the preleased share of construction in the pipeline will decline, but it will not be a noticeable market trend until mid-2016, JLL reports.
- 21 Fortune 500 (and 41 Fortune 1000) companies are headquartered in DFW.
- Four Global 500 companies are headquartered in DFW.
- DFW is third in job growth among large metros, behind New York and Los Angeles.
- DFW maintains the sixth-largest concentration of high-tech workers among large metros.
- DFW was selected by the U.S. Chamber of Commerce Foundation as the best place for startups, and ranked No. 1 by Kiplinger among great cities for starting a business.
Three Things to Know About Texas' Top Four Retail Markets
Texas’ major metro areas—Dallas-Fort Worth, Austin, Houston, and San Antonio—each have different histories, cultures, and leading industries. But when it comes to the health of their retail markets, they are all on the same page, reports The Weitzman Group.
Job and population growth are continuing to drive demand, and lenders are keeping developers in line. This has helped avoid an overbuilding situation. At the same time, retailers—especially grocers—are continuing to expand, absorbing some of the big-box space that became vacant after the Great Recession.
Here, The Weitzman Group’s Ian Pierce outlines three key takeaways for retail conditions in the state’s top four markets.
1. The markets are as strong as they have ever been. Austin and Houston are reporting the tightest markets in Texas, both with 96 percent occupancy. (Austin’s rate is based on an inventory of 46.3 million square feet. Houston’s inventory, of course, is much larger; it’s more than three times as large with 152 million square feet.) San Antonio and Dallas-Fort Worth are not far behind with, respectively, 93.5 percent and 92 percent. To put those occupancy rates in perspective, DFW is enjoying its lowest vacancy rate in 15 years, at only 8 percent. And it was only four years ago that DFW reported a 13 percent vacancy rate. On an inventory of 190 million square feet, 13 percent means a lot of vacant space.
2. All of the markets are seeing one trend in construction: limited to the existing level of demand, with extremely limited speculative small-shop space. Austin is the most limited, with only about 1 million square feet coming online this year. The market is seeing a few grocery stores, mainly Walmart and H-E-B, plus a handful of other anchors like Bass Pro Shops and LA Fitness. Because the market for small-shop space is so constrained, dozens of small 10,000- to 15,000-square-foot strips are being built in tight submarkets.
In Dallas-Fort Worth, new space for 2015 will top 3.8 million square feet, nearly double what the market saw in 2014. Still, most of the new space opens completely occupied by anchors like grocers. Limited small-shop construction is keeping retail rental rates firm and growing.
Houston also is seeing construction jump, by nearly 1 million square feet, to 2.6 million square feet on track for 2015. That total, though, is still extremely constrained for a market that is one of the largest in the country. The Houston metro area is seeing construction dominated by grocery stores, led by Kroger, along with several major mixed-use projects and, in contrast to the other three markets, new mall space. This comes from expansions at Houston Galleria and Baybrook Mall, which together represent nearly 700,000 square feet of new space.
In San Antonio, the market is underway with approximately 1.3 million square feet of new space this year, down slightly from last year’s total. Walmart dominates the new space with five new Supercenter and Neighborhood Market locations.
3. As good as 2015 looks, 2016 might be even better. Retail construction has remained in pace with demand, so the market shows no risk of overbuilding. The retailers expanding in the four major Texas markets are dominated by the categories of food, entertainment, fitness, and, to a lesser extent, medical. All of these categories are Internet-resistant. That spells good news for the long term for our four very different markets that share one thing: a healthy outlook.
Office Parking Ratios Leap Across the Region
Tenant demand is driving up parking ratios at North Texas office spaces, according to the research team at CBRE. The region spans 12 counties and is geographically larger than the states of Rhode Island and Connecticut combined. This makes car mobility a key factor for a labor force of 3.6 million workers in an economy that by August had already added 85,000 new jobs. More than 80 percent of area workers drive to work. And as employers continue to strive for lower occupancy costs—optimizing space requirements to have lean, efficient footprints—parking configurations are increasingly a crucial part of a tenant’s search and space decision.
Given these two dynamics—more efficient floorplates and a rising driving/working population—parking ratios for newly constructed office buildings are escalating sharply as developers rush to attract tenants. Looking more closely at the data, CBRE Research determined that DFW’s Class A suburban product (built since 2007) averages 4.3 spaces per 1,000 square feet of space. This is markedly denser than metro areas with similar financial, telecom, and professional/business services employment bases like Atlanta (3.6 per 1,000) or Charlotte, North Carolina (3.5 per 1,000). Even in Texas, DFW slightly “outparks” other big metros like Austin (4.2 per 1,000) and Houston (4 per 1,000).
In downtown Dallas, which has historically low ratios, empty lots are disappearing as developers and investors snap up land for future projects, placing pressure on landlords to construct new parking structures or reconfigure buildings to accommodate tenants and their commuter workers. Projects built before 2007 have a market-low ratio of 1.5 spaces per 1,000; newer buildings match the suburban average of 4.3 spaces per 1,000—an increase of 65 percent. The most generous parking can be found in Las Colinas, which, for projects built in the last wave, offers 6.3 spaces per 1,000.