Cresa Connection: Tollway Corridor - January 2021
Please find January's edition of my monthly update on the North Dallas/Plano/Frisco office market detailing lease transactions recently signed, tenants searching for office space in the market and the latest office building news.
As we enter 2021, if you have an office decision to make this year please contact me for help with your real estate needs.
Lease Transaction Comps
1. Tenant: Resources Connection
Building: 15301 Dallas Parkway / The Colonnade I
Size: 10,649 SF
Term: 12 months
Free Rent: 0 months
Start Rate: $26.00/NNN
TI: "As Is"
2. Tenant:. First United Bank
Building: 3930 Dallas Parkway / The Parkwood
Type: New Lease
Size: 84,479 SF
Term: 120 months
Free Rent: 0 months
Start Rate: $23.00/NNN
3. Tenant: Nthrive
Building: 7950 Legacy Drive / One Legacy West
Type: New Lease
Size: 50,686 SF
Term: 89 months
Free Rent: 2 months
Start Rate: $29.50/NNN
4. Tenant: Center for Autism and Related Disorders
Building: 5850 Granite Parkway / Granite Park Four
Type: New Lease, Size: 26,417 SF
Term: 56 months
Free Rent: 7 months
Start Rate: $32.00/NNN
5. Tenant: NRG Energy
Building: 2745 Dallas Parkway / Parkway Centre III
Size: 24,555 SF
Term: 62 months
Free Rent: 2 months
Start Rate: $27.00 + E
Another big drop in office space occupancy in the 4th Quarter of 2020 caused DFW net office leasing to decline almost 4 million square feet for all of 2020. The decrease, triggered by the pandemic, was the largest drop in office occupancy in DFW in more than 30 years. Net office leasing fell more than 1.4 million square feet in the 4th quarter alone, which on the bright side was still an improvement from the 2 million square foot decline posted in the 3rd Quarter 2020. The 2020 decline was twice what the market lost during the worst year of the Great Recession. It was the fourth consecutive quarter of negative office absorption in North Texas.
Adding to the pressure on the local office market is almost 9 million square feet of sublease space, nearly two-thirds of which represent spaces 25,000 square feet and larger. The biggest declines in office building occupancy in 2020 were in Far North Dallas (1.44 million SF), which represents the areas of Addison, Bent Tree, West Plano, Frisco and The Colony, Las Colinas (955,304 SF) and Downtown Dallas (826,167 SF). Overall DFW office vacancy stood at 23.4%, which represents the highest level in more than a decade. More than 4.2 million square feet of additional office space was under construction in the DFW area as of the 4th Quarter 2020, of which 45% of that space was pre-leased.
The influx of corporate relocations and workers to Texas during the pandemic is expected to fuel a quick rebound for the state’s retailers in 2021 as shoppers return to dining, entertainment and brick-and-mortar stores. Texas added 373,965 residents over the last year, the most in the nation, while California lost 70,000 residents. The migration to Texas is driven, in part, by Fortune 500 companies such as Oracle, CBRE and Charles Schwab relocating their headquarters from California to Texas to save costs and escape the regulatory and tax burdens on businesses that prohibit potential growth.
Dallas and San Antonio have landed at the top of a nationwide list of cities best suited for remote work. With most office employees working from home due to the pandemic, there has been a major focus on providing technology services to the home. InMyArea.com, a Los Angeles-based company that compares home services available in markets around the country, ranked the major U.S. metro areas for home-working ease based on technology and housing resources. After analyzing 800 communities across the nation, San Antonio ranked first with Dallas a close second and Houston fourth. Texas cities benefit from low housing costs and access to high-speed internet, both important factors for remote workers. As of January, about 35% of Dallas-area workers were back in the office, which represents one of the top markets nationwide for employees going back to the office. Nationwide, 21% of workers have gone back to the office.
Just weeks after seizing ownership of the $1 billion The Campus at Legacy West (J.C. Penney’s former headquarters), Beal Bank has put the 50-acre property up for sale. Developers had been working on turning the retailer’s former headquarters into a mixed-use project with office, retail, hotel, apartment and residential uses. But last year, Beal Bank moved to foreclose on the 1.8 million square foot property, which was turned over to them in November by the previous owner – Silos Harvesting Partners. Beal Bank had loaned Silos $388.7 million in 2016 to purchase and redevelop the property. On January 5 of this year, the lender paid $265.4 million in a non-judicial foreclosure sale of the property.
Fourteen555 (14555 Dallas Parkway), the 249,564 square foot Class “AA” mid-rise office building along the Dallas North Tollway service road north of Spring Valley Road, is on the market for sale at $80 million ($320/SF) on a 7.50% cap rate. The 2018-constructed asset’s two anchor tenants – OxyChem and Moss Adams – comprise 67% of the building’s net rentable area and have long-term leases in place expiring in 2032 and 2035, respectively. The property’s higher than expected capitalization rate (+-200 basis points higher than if the property were sold on a fee simple estate) is due to the property being on a 99-year ground lease, with the ground lessee making $1,886,000 annual land lease payments. The property’s seller is Admiral Capital, named after one of the lead investors – former San Antonio Spurs center David “The Admiral” Robinson.
Louisiana-based banking firm B1 Bank is expanding its North Texas footprint with a new operation in Frisco. The Baton Rouge-based financial firm has signed a 6,600 square foot lease at 3010 Gaylord Parkway in Hall Park and will open the office in the 1st quarter 2021. B1 Bank has over 40 banking locations in Louisiana and Texas with more than $3 billion in total loans held for investment.
New Orleans-based investor Uhalt Investments has purchased the 11-story, 190,830 square foot 7920 Belt Line Road, which had been owned by Dallas-based Pillar Commercial for 13 years. Pillar recently completed a $2.3 million capital improvement renovation of the building, which was 89% leased to almost 40 tenants at the time of sale. Lead tenants in the building include Interactive Communications, Security National Mortgage, Praxeo Health, Akumin Corporation and Central Security Life Insurance. The sale includes a one-half acre medical pad site earmarked for future development.
Florida-based investor Kayne Anderson Real Estate Advisors, which specialized in medical real estate investments, has purchased 6000 Spring Creek Parkway (Spring Creek Center). The two-story, 48,000 square foot medical office building, which was built in 2017 at the Dallas North Tollway and Spring Creek Parkway, had been owned by Milwaukee-based Hammes Partners after being developed by Haggard Property Group. Tenants in the building include Cornea Associates of Texas, Prime Diagnostic Imaging, Glaucoma Associates of Texas, Pediatric Ophthalmology and Baylor Scott & White Cardiovascular Consultants.
Plano high-tech firm Edge Communications Solutions, which is a long-term tenant at Tollway North Office Park on Windcrest Parkway near Preston Road, has renewed and downsized its office lease at the business park. Edge, which was previously in 30,000 square feet after having grown from an initial footprint of 5,000 square feet, had been working remotely and right-sized their space to 21,000 square feet. The seven-building office campus is owned by California-based investor KBS Advisors. Edge specializes in design, procurement, deployment and management of communications networks and IT systems for a variety of clients.
The newly-constructed 210,000 square foot Offices Two at Frisco Station office building has achieved 90% occupancy status after tech firm MTX Group, which was recently awarded a $295 million COVID-19 contact tracing contract, signed a 20,000 square foot lease and Keurig Dr. Pepper, which is awaiting completion of its Texas regional headquarters building just north of The Star, needed additional space for its innovation center.
WeWork, which is the largest operator of shared-office space in the DFW market, is expanding its new pay-as-you-go offering to its DFW locations in an effort to boost business. Starting in November, the co-working firm rolled out the program it calls WeWork On Demand, which allows users to pay $29 per day for workspace in 10 of WeWork’s DFW locations. The program also allows users to rent a WeWork conference room starting at $10 per hour. WeWork On Demand is now available in 17 U.S. markets and 190 buildings nationwide. Co-working providers have been challenged during the pandemic with more office workers at home and less demand for shared-office space. As a result of the pandemic, flexible office providers have had to create new plans to bring in business as well as retool their spaces to offer more private offices and workspaces to ease social distancing concerns.
I specialize in representing office tenants in the North Dallas/Plano/Frisco market. Please let me know if I can be of service with your real estate needs (relocation search, expansion, lease renewal negotiations, building/condo purchase, sublease, portfolio management).
Tor Erickson | Senior Vice President
5005 Lyndon B. Johnson Freeway, Suite 800
Dallas, TX 75244