By Matt Montague, August 29, 2018
I began my career at The Staubach Company as an intern in the summer of 2008; poor timing, most would agree. My spin, in hindsight, is that I am fortunate to have been able to experience what I hope to be one of the, if not the, worst downturns of my career, from a risk-free position. As the impact of the recession started to finally hit Fort Worth’s office market in 2009, I had been tasked with assembling a summary of all the downtown Fort Worth sublease and shadow space (those not marketed, but could be made available).
At that time, there was over half-a-million square feet available or coming available on the sublease market. Significantly, this was equal to a roughly 400% increase from the prior year, and not including what was already available or coming available as direct space. Challenging times for our downtown market, to say the least.
Fast forward to 2018, vacancy is up year-over-year from 2017 due to some contraction in the market and the recent delivery of Frost Tower. However, we have a historic low amount of sublease space available on the market, similar to what we saw post-recession in 2014 when the market was recovering/recovered.
We are in a very interesting time in downtown Fort Worth.
Consider the fact that vacancy is up, but not because of sublease space. Sublease space is down to its lowest level since 2014.
Additionally, the Pier 1 Imports Building currently accounts for close to 90%, a staggering 75,000+ square feet, of all the available sublet space in the downtown market. (A number expected to drop dramatically as new deals begin to finalize.)
Still, absorption remains positive even with the new Frost Tower coming on line earlier this year.
Rental rates remain flat as concessions remain available to attract new tenants, which I anticipate will continue until vacancy returns to historic norm of around 15% – 18%. All while the shortage of large blocks space in the suburban market has forced those tenants to consider downtown opportunities, adding additional pressure to the market.
So, what does it mean for the long-term and immediate future of tenants in the market?
We are seeing tenants that have historically occupied sublease space, in some cases in excess of 20 years hopping from sublease to sublease, now forced to negotiate direct leases with landlords to stay in their buildings or downtown. We are also seeing young companies that would typically leverage subleases as flexible office solutions, being pushed in to direct leases, at market terms.
The shift has no doubt come as a breath of fresh air for building owners looking to pare their vacancy with tenants’ focus now forced to leasing direct space. The shift has meant positive absorption which will eventually translate to pressure on rental rates as the vacancy continues to be absorbed. Quite the contrast to years past where tenants almost always had a sublease opportunity to leverage against the direct spaces. The focus is now on maximizing benefit through direct lease negotiations. Tenants, especially of size, currently in the market still have an opportunity to take advantage of favorable conditions, but it won’t last forever.
If you’re going to make a move, don’t wait. Act now.