2021 Dallas Office Summit BY RAY HANKAMER Takeaway/Summary: Overall signals are highly positive for the Dallas office market moving forward, with sub-lease and new space being absorbed by organic growth and by companies flocking into the Metroplex from other states. New development has slowed as lenders require higher equity, albeit largely without personal recourse, but should return to previous levels as COVID-19 threat is brought under control and vacancies in existing buildings are absorbed. Companies, their employees and their interior designers are still evaluating what post-COVID-19 interior layouts will look like with regard to work-from-home versus having a dedicated desk in the office. Dallas attracts companies because of lower cost of living and lower taxes, and easier lifestyle. Very strong entrepreneurial growth is predicted as COVID-19 fears are allayed by vaccines and by peoples’ short memories. Market Update: COVID-19 Office Report Moderator: Sharon Morrison, ESRP. Panelists: Alex Coe, CRESA; Nick Lee, NAI; Jeremy Duggins, Cawley. • Long-term sub-lease space, especially furnished, is being gobbled up; leasing slowed in early- and mid-2020 but in 4th quarter things started picking up; tenants looking for “deals” • As sub-lease and other vacant space absorbed, new development— currently slow—should pick up; existing sub-lease space is attractive to companies eager to get started immediately in business • Suburban low-rise buildings are getting much more attention than CBD high-rise with elevators; suburban office space attractive due to its proximity to employees’ homes, and therefore shorter commute; communities north of Dallas are the most popular; there are no topographical boundaries to Dallas expansion, which tends to keep homes and other facilities affordable, although high-income employees from other states buying homes in Dallas are driving up home prices; staggered work schedules lessen traffic congestion at the normal rush hours, making longer commutes shorter time-wise • Lots of new companies are moving to Dallas, due to lower cost of living, lower taxes and more convenient commutes—also available energetic labor pool, as college grads stay in Texas • Absorption was good before COVID-19, and now companies coming here from other states are adding to that demand; Fortune 500 companies are temporarily cautious about leasing new space, but smaller companies are ready to get back to work now that vaccine is out, especially since TI and other landlord concessions are more generous than before COVID-19 • Flexible space is popular, as companies wait and see what the work26
MARCH 2021
from-home protocols will be as COVID-19 recedes; landlords are having to be more flexible as tenants are undecided about interior layouts; some aspects of “work-from-home culture” will remain after COVID-19, but in general return to office work should accelerate due to perceived need for worker collaboration; the younger employees are the most eager to return to the office; the eventual mix between open co-working spaces and private offices is in flux • The industrial market is on fire, and with it comes demand for office space outside of but near to the warehouse facility • Trend is to higher quality, built out spaces, with trends towards “touchless” where possible • Dallas has had 74 corporate relocations with 91 more currently proposed, and more lining up every week; local pro-business climate is credited with this phenomenon plus availability of “fantastic” local labor pool; in addition, out-of-state companies think neither Dallas nor Texas are likely to experience a full shut-down; some high-end tenants are looking to switch from renting to buying their own building, so they can occupy 100% and control the environment of the building, including ingress and egress; single-tenant buildings can efficiently utilize a higher percent inside the building envelope, with fewer “lost” public amenity areas • Some corporate relocations are of small headquarters and legal domicile for tax purposes only, and large numbers of employees don’t necessarily follow the move of the legal HQ to Dallas • Flexible work schedules relax some pressure on developers for parking, since lease premises will not be fully occupied by workers going forward • Some young workers are moving to Dallas without jobs, solely on the realization that long-term employment prospects will be good Investment Sales, Financing, & Development Update Moderator: Chris McCluskey, VanTrust Real Estate. Panelists: Grant Pruitt, Whitebox Real Estate; Steve Modory, Champion Partners; Chris Murphy, Newmark, • Investment sales volumes are down in the largest markets in the state, with Austin having the biggest fall-off, down 85%; Houston is down 70%, with shrinking oil & gas occupancies; and Dallas is down about 50% in office investment sales; panelists are optimistic that second half of ‘21 will pick up with lots of activity • Interest rates are as low as they have ever been, although COVID-19 fears Continued on Page 30>
