Dallas office building spree takes shape
Can city stomach a binge?
11:30 PM CDT on Thursday, June 23, 2005
By STEVE BROWN / The Dallas Morning News
Is central Dallas ready for an office building boom?
Eager developers hope so. But some market analysts and landlords aren't so sure it's time for a building binge in Uptown and the adjoining Arts District.
"In my career, I've never seen anything like this," said John Zogg, senior vice president with Crescent Real Estate Equities, downtown's biggest office landlord. "I don't understand where these developers think the demand for these buildings will come from."
Last year, expanding and relocating tenants leased about 400,000 square feet of additional office space in Uptown and downtown.
A half-dozen office projects in the works for the area could add more than 2 million square feet of office space in the next two years.
The latest announcement came this week.
Houston developer Hines and Ross Perot Jr.'s Hillwood real estate firm unveiled two office towers at the Victory project that will contain about 400,000 square feet in the first phase, called One Victory Park.
"If you look at the other Class A buildings in the immediate area, they are almost full," said Hines senior vice president Clayton Elliott. "We are seeing demand from several larger users" who want to lease office space in new buildings.
Other developers must be seeing the same thing.
Along with Hines and Hillwood, companies that plan to build in Uptown include CarrAmerica Realty, Lincoln Property Co. and Harwood International.
Across Woodall Rodgers Freeway in the Arts District, new buildings are in the works by Billingsley Co., Hall Financial Corp. and Hunt Consolidated.
Harwood's project will be located on Harry Hines Boulevard, about three blocks from the Victory complex. Harwood is also building Uptown's Azure condominium high-rise.
"Now that Azure is under way, we are going to be devoting 75 percent of our time" to the office project called St. Ann Court, said Gabriel Barbier-Mueller, Harwood International's chief executive.
Harwood International has already built four office projects in Uptown since the 1980s. "We have been full in our projects and so we have a reason to build," he said.
Mr. Barbier-Mueller also believes there is a demand for a new generation of office space in central Dallas.
"The premium buildings in Uptown and downtown are almost 20 years old," he said.
While the landmark downtown skyscrapers were built in the 1980s, their quality tops new buildings planned, and they are cheaper to rent.
"Rental rates are in the high teens and low $20s (per square foot annually) for existing product in the area, versus Class A new construction where rents will be in the high $20s," said Daryl Mullin with Cushman & Wakefield of Texas, a real estate brokerage firm. He agrees that "efficiency in a new building is a valid argument" for some tenants, but the cost will be too high for others, Mr. Mullin said.
"I know that the Uptown office market is recovering faster than some others," he said. "But since it's in such close proximity to downtown, it's hard to believe there is enough demand to justify constructing new office buildings – particularly to the magnitude that developers are talking about."
At the end of the first quarter, downtown Dallas had an office vacancy rate of about 31 percent, compared with about 25 percent citywide, according to Cushman & Wakefield. In Uptown and Turtle Creek, the vacancy is much lower, at 12.5 percent.
Not just offices
Several of the developments in the pipeline include more than just office space.
Hillwood has plans for a 45-story tower in Victory that will include retail space and condos along with the office space.
And Harwood International's project will include two restaurants, an art museum and gardens.
Hall Financial's proposed tower across the street from the Morton H. Meyerson Symphony Center will provide more than 300,000 square feet of office space on the lower floors and luxury condos above that, said real estate brokers who have seen the plans.
"We are continuing to work on it but not ready yet to make an announcement," developer Craig Hall said last week. "We are still making a lot of changes in the building.
Two of the office complexes planned for south of Woodall Rodgers have major businesses as their anchors.
Hunt Consolidated's proposed office tower at Akard and Woodall Rodgers Freeway will house its offices, which are now in more than 350,000 square feet in the nearby Fountain Place skyscraper.
And Billingsley's One Arts Plaza building on Routh Street will be the new home of 7-Eleven Inc., which is moving from Cityplace a few miles north of downtown. It also will have condos, retail space and a large public plaza.
Space left behind
Of course, corporate moves by Hunt and 7-Eleven will leave empty office space behind.
"There is certainly not enough demand for all of the announced buildings, thus the drive by developers to have a lead tenant before starting construction," said Greg Biggs with brokerage firm Studley Inc. "With the recent announcements of relocations and the increased activity in the market, it will be interesting to see if a developer will make the two- to three-year commitment to start a project without a lead tenant.'
Don't be surprised if that happens.
"It is an indication of how much capital is available in the real estate market," Mr. Mullin said. "This doesn't seem to be based on demand."
Jack Eimer, president of Transwestern Commercial Services' central region, also thinks money is pushing the development wave.
"We've all been to this show before," Mr. Eimer said. "All that pent up capital for existing product is now starting to focus on development."
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