Commercial real estate is a dynamic and cyclical industry. Here landlord leasing experts Jeff Eckert and Blake Shipley analyze the trends that are driving leasing activity and the changing landscape of the office market.
Q: People in the commercial real estate industry continue to reference Dallas’ historic over-building pattern in the office sector. Do you see this pattern happening again and should we be concerned about widespread overbuilding in this cycle?
A: (Eckert) There will certainly be select new construction in our core markets going forward that will include speculative and build-to-suit construction. But I don’t see a relapse of our historic over-building pattern like years past. Overall, fundamentals are different than ever before.
A: (Shipley) Certain fundamentals in the market have changed. Lending practices have tightened and cheap dirt is no longer available in core submarkets. As much as anything, we can all thank our friends in the multifamily world for their success. Uptown for example, is forever changed by their rapid development this last cycle.
Q: The hot submarkets in DFW have consistently been Uptown, Preston Center, and the Legacy area of Far North Dallas. What factors make these areas so special?
A: (Eckert) Superior location, un-paralleled amenities and asset quality are all reasons that these three submarkets have consistently outperformed others with respect to rental rate growth, leasing velocity and high occupancy maintenance. These three markets define urbanism in Dallas.
A: (Shipley) There are a number of influences, but in my mind the primary is the “taste” of urbanism that each of them offer. Dallas is maturing in a way that makes it fun to watch and it’s happening more organically than it has in the past. Earlier development was isolated and in pockets across town. We saw infill with the last cycle; it added density and stitched those pockets together into neighborhoods and larger districts. Walkability can’t be undersold and the market has demonstrated what people really want.
Q: Are there any up-and-coming areas we should keep our eyes on and why?
A: (Eckert) Always. Look for strong upside in both the Central Expressway and LBJ submarkets. In the near term, rental rates will accelerate along Central Expressway as a result of the rapid rise in rental rates and limited availabilities in Uptown and Preston Center. Central Expressway is surrounded by great neighborhoods like Lake Highlands, Lakewood, Highland Park, University Park and Preston Hollow, and it has allowed the area to emerge as a bright spot for real estate investment activity. LBJ is another submarket to watch, especially with the nearing completion of the LBJ Express Project. We are already seeing a renewed tenant interest in LBJ and we expect this trend to only strengthen going forward.
A: (Shipley) I agree with Jeff and can’t wait to see the impact of the LBJ Express Project upon its near completion. Dallas has changed significantly since construction started and I’m very interested to see how investors & tenant’s respond to the re-arrival of LBJ as a viable option in the market. As a submarket, it could be one of the best remaining value-add opportunities for investors chasing higher yields.
Q: There’s a lot of talk about office space becoming more efficient and users requiring less space. Is this as big of a deal as many talk about and how do you see this playing out in our market for owners?
A: (Eckert) Larger users of space are looking to become more efficient and real estate owners are being creative to accommodate the additional parking needs, but I do not see this as a wide spread epidemic. Leasing velocity is strong in our region and plenty of office tenants are still parking at the standard parking ratios in place from original construction.
A: (Shipley) The trend certainly isn’t slowing. Overall densities continue to grow and the requirements for parking continue to rise. Common sense would argue that there must be a tipping point but I haven’t seen evidence of the growth slowing. It’s worth noting that not all parts of the country work like we do. I just returned from a trip to San Francisco where the technology industry really redefines density within a space. The theory is to pack the employees into 1/3 of the overall square footage on benches and open desks. That leaves room for the lounging areas, dining hall, play-spaces and collaborative rooms that drive culture and creativity. I love it and the employees seemed to as well. I wonder if/when the trend makes its way to our city.
Q: What do you see as the biggest opportunities ahead for Dallas? Challenges?
A: (Eckert) The outlook is very bright for Dallas. Recently we’ve celebrated several announcements made by companies relocating to our region; and the prospect of other large relocations in the near future is certain. Diversified growth presents us with great opportunity, but there will be challenges with respect to our overall infrastructure. According to the Dallas Regional Chamber, Dallas is projected that our region will add 3 million people between now and 2030. With that said, the confidence in our City leaders across the Metroplex is stronger than ever before and I strongly suspect we will be just fine in supporting the accelerated growth of our great region.
About the Authors
As Manging Director and leader of the Agency Leasing and Property Management team, Jeff Eckert is responsible for leasing and marketing office buildings within the firm’s Dallas portfolio, as well as new business development for the office division. View Jeff Eckert’s bio or connect with him on LinkedIn.
Blake Shipley is a Vice President with the JLL Agency Leasing Group in Dallas, where he is responsible for leasing commercial office properties throughout the Metroplex. Mr. Shipley focuses on the strategic positioning of his clients real estate assets to maximize value. View Blake Shipley’s bio.