Office market in downtown Fort Worth is flagging, but not for long
See full Dallas Business Journal article by Spencer Brewer here.
The Fort Worth central business district is suffering from higher than average office vacancy and negative net absorption, but indicators suggest the downtown area will hit a rebound over the next six to 12 months.
According to a report from Holt Lunsford Commercial, net absorption in Fort Worth's downtown is about -95,000. However, the number of tenants in the market and leases being negotiated indicate that the area will recover during the coming months.
“We don’t expect to see any downturn,” said Geoff Shelton, managing principal of the Fort Worth office at Holt Lunsford Commercial. “If anything, we’re pretty bullish on positive absorption over the next six months, and especially the next 18 months, to get us back to that 10% to 12% vacancy rate.”
Total vacancy in the central business district is running at about 1.8 million square feet. Shelton said the traditional vacancy for downtown is about 13%, but the area is currently at about 17%. Indicators suggest this will turn around in the near future, he said.
Shelton spoke with the Dallas Business Journal about these indicators and other underlying trends shaping the Fort Worth central business district.
How is the central business district doing, coming out of the pandemic?
A lot of our core market tenants, while most are private, the ones that are more public have been officing from home. So they decreased space here and there. But the interesting thing is, we typically absorbed roughly 100,000 to 150,000 square feet downtown. Right now, we’re down about 230,000 square feet. But we only have 125,000 square feet of sublease.
If you look at the factors that are going around in the office market not just here but anywhere, you would assume that we have all this vacancy, we have all this shadow space (space that is leased but not utilized), we have tons of sublease space but the office market as a whole downtown still remains relatively within our five- to 10-year vacancy rates.
We haven’t had any major move-outs, other than D.R. Horton, but that was before the pandemic... The one thing that the core downtown struggles with is corporate relocations. It’s a huge point of emphasis for the new mayor. It’s always been organic growth, whether it’s people expanding or moving from buildings. And so a big focus for everybody now is to try and recruit the deals that are either going to far north Dallas or Alliance back into the core of Fort Worth.
Why would you say Fort Worth has struggled with corporate relocations?
I would say lack of vacancy, tax incentives and just overall corporate recruitment. But it’s improving dramatically and I think we will see, over the next 12 to 18 months, somebody relocating from out of state, or even in-state… that’ll plant a flag here.
The interesting thing is, and it’s not technically in the central business district, but when Pier 1 vacated their building, about a mile outside of downtown, that was really the city’s biggest block to recruit a high credit relocation. Subsequently, the City of Fort Worth ended up purchasing that asset and relocating our City Hall to that building. It took a big chunk of vacancy off of the market, but it did eat up our best corporate relocation.
You mentioned shadow space. Is that something that’s happening often in downtown Fort Worth?
As we’ve been working through the last 18 months, employers have been sending employees home to work. In our research, most of them have found it’s actually fairly effective for them. You still want that workspace interaction and that relationship building in-person, and people are starting to come back to the office. So where I would tell you, a year ago, most of our core (central business district) clients were probably at 60% occupancy and were working on different schedules… They were not shedding space. If anything we saw an increase in space.
We thought we would see about 20% reduction in space, just as some of the clerical, admin and accounting functions could office from home, but we actually saw it tick 20% on the positive side, where people were actually taking more space. Just to spread people out and make everybody feel more comfortable. And then people were starting to upgrade their spaces. The buildings that are being upgraded, have capital being invested into the asset, are the groups that are going to win deals.
What are some underlying trends affecting the Fort Worth central business district?
The class A towers in downtown are phenomenal buildings, the walkability is there. The one thing that I would be interested to see — I think where downtown got dinged, and it really doesn't affect the office absorption numbers — but our class A rates downtown are the same as our class A rates outside of downtown, which is very unique of any city. The difference there is parking. Our parking downtown is going to run you anywhere from $4 to $6 per square foot. And so, in talking with a handful of landlords, there was a loss of revenue there because they’re month-to-month parking, and if half your tenants or employees are working from home, you’re going to shed that revenue. So I imagine for a half dozen landlords here that was a big issue.
Another big issue is most of the retailers struggle with people not being downtown. It was very quiet. At one point, up until earlier this year, you could valet for free. That’s changed, which has been a big issue for a number of tenants who have clients coming and going.