Texas Real Estate Business

MAY 2016

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

Issue link: https://texasrealestatebusiness.epubxp.com/i/674650

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Page 32 of 49

32 • May 2016 • Texas Real Estate Business www.REBusinessOnline.com In 2016, uncertainty in the oil and gas industry has made a major impact on the Fort Worth commercial real es- tate market. While each submarket is afected diferently, the need for relo- cations and renovations will lead to a rising demand for quality ofce and retail spaces across the area. Develop- ment of Fort Worth real estate is ex- pected to remain strong in 2016, with growing opportunities that create a strong and healthy market. Offce Opportunity Downtown Fort Worth has become a hub for major players in the oil and gas industry, such as Holland Ser- vices, Forestar Oil & Gas and FTS In- ternational. Within the last 180 days, these tenants have put over 125,000 square feet of ofce space up on the market for sublease. However, the rest of the ofce sec- tor has been consistently absorbing large blocks of space, proving healthy despite oil and gas concerns. We have seen at least six transactions totaling over 385,000 square feet within the last six months. Transactions included Charles Schwab's 130,000-square- foot lease at Circle T in Westlake, and Teague Nall & Perkins' 42,000-square- foot lease of the former Everest Col- lege building at the Mercantile Center in Fort Worth. The consistently strong demand for quality ofce space in west/southwest Fort Worth over the past three years has driven asking rents up more than 10 percent, from an average of $19 per square foot to $21.10 per square foot according to CoStar Group. Despite this narrowing gap between west/ southwest ofce properties and their downtown competition, the steep cost and limited availability of downtown parking will likely deter many tenants from seriously considering central business district space options. Recently completed and soon to be delivered projects will provide addi- tional supply to accommodate strong demand for west/southwest ofce space. In late 2015, Mazur Capital de- livered 40,000 square feet at 111 Bo- land St., just northwest of the bustling West 7th district. A bit farther west at the master- planned Clearfork development, the frst ofce building should be com- pleted this fall. The building will pro- vide nearly 60,000 square feet of space for Smith & Nephew, and an addition- al 112,000 square feet will still be avail- able for lease. Clearfork will follow this up with another 125,000 square feet, which will be split between two more ofce buildings to be delivered in 2017. Asking rates for these devel- opments will be nearly $30 per square foot, which is in direct competition with quality downtown ofce space. The strong pipeline of new ofce supply isn't limited to just the west/ southwest submarket. In downtown Fort Worth, Anthracite Realty Part- ners is constructing the 25-story Frost Bank Tower. Frost Bank and Jetta Op- erating will each take roughly 70,000 square feet, and 170,000 square feet will be available for lease. To the north, Mercantile Partners is preparing to lease Gourley Plaza's 300,000-square-foot ofce space, re- cently vacated by the FAA, and is investing roughly $10 million in renovations to accommodate future tenants. Farther north, Hillwood's AllianceTexas is progressing on proj- ects that target large, corporate us- ers by delivering hundreds of thou- sands of square feet of ofce space. In Southlake, Granite is constructing a 160,000 square foot ofce building at Southlake Town Square, which repre- sents the frst major addition to that submarket since Cedar Ridge Ofce Park. As the supply for competing ofce space increases dramatically over the next two years, we expect to see le- verage swing back in favor of ofce tenants and eventually result in more aggressive landlord concessions with slowed rate growth. Retail Growth The retail sector, on the other hand, has not been phased by market fac- tors that have shifted the pendulum of power in the ofce market. Occu- pancy and absorption rates continue to rise as a result of high retailer de- mand for limited space. Constricted availability is increasing competition among retailers for high-visibility projects, allowing landlords to be both more frugal on fnish-out allowances and enabling them to demand higher rates. Much of this trend is fueled by the population growth in Fort Worth, which is now estimated to be the 16th largest city in the United States. Uncertainty in the oil and gas in- dustry has transferred savings onto consumers at the gas pump, leading to more disposable income among a growing population. Retailers have taken advantage of this trend with a continued emphasis on concepts that are convenient and ofer products that are priced aggressively but carry the semblance of quality. This can be seen in both the per- vasiveness of "fast-casual" restau- rant concepts such as Zoe's Kitchen in the Westbend development and soft goods retailers such as H&M, which has recently signed leases in Sundance Square and Ridgmar Mall. Ground leases have also seen a re- surgence. Stand-alone concepts like quick service restaurants are taking advantage of the bullish market and using ground leases to minimize their capital outlay, allowing them to open more locations over the short term. Developers have seized the op- portunity to deliver projects that al- leviate the surging demand for retail, with the predominant type of product trending toward mixed-use devel- opments. Large new developments that exemplify this include: West- bend, a 278,000-square-foot ofce/ retail mixed-use development featur- ing The Fresh Market; Waterside, a 175,000-square-foot retail develop- ment with Whole Foods Market, REI and several restaurant concepts, and; Left Bank, a 1,500,000-square-foot mixed-use development along the W S N A P S H O T: F O R T W O R T H Jon McDaniel President of Fort Worth Retail, NAI Robert Lynn STRONG DEMAND, NEW DEVELOPMENTS IN STORE FOR FORT WORTH OFFICE & RETAIL Colt Power Vice President, NAI Robert Lynn Bobby Montgomery Market Director, NAI Robert Lynn In downtown Fort Worth, Anthracite Realty Partners is constructing the 25-story Frost Bank Tower. Frost Bank and Jetta Operating will each take roughly 70,000 square feet. The frst offce building in the planned Clearfork development should be completed this fall. The building will provide nearly 112,000 square feet available for lease.

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