Texas Real Estate Business

MAY 2017

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

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28 • May 2017 • Texas Real Estate Business www.REBusinessOnline.com M A R K E T H I G H L I G H T: F O R T W O R T H Despite waves of new development and rebounding oil prices, the Fort Worth office market hasn't changed. It reflects the city's lifestyle and at- titude — stable and patient — and op- timistic as to what the future holds. As businesses come and go and vacancy rates fluctuate, the Fort Worth office market views the long-term poten- tial of its investments and confidently forges ahead. Go West Much of the new development we are seeing is southwest of downtown. The West Southwest submarket ac- counts for 62 percent of the construc- tion begun or underway in 2016, with The Offices at Clearfork accounting for 330,000 of the 734,000 square feet built after 2016. The new vision for the master-planned, 270-acre Clearfork development includes 2,500 apart- ment units, 2 million square feet of of- fice space, and 1.2 million square feet of retail space anchored by Neiman Marcus. The Fort Worth CBD is adding its first new building since the completion of The Cassidy, located in Sundance Square, in 2014. The property at 640 Taylor St. will add 280,000 square feet to the market but will be 51.5 percent leased upon completion. Its owner, Jet- ta Operating, and namesake, Frost Na- tional Bank, will occupy a combined 140,000 square feet. Effects of Westward Migration The Offices at Clearfork and Frost Tower only account for 3 percent of of- fice space in Fort Worth, but concerns are rising over vacancy rate increases. The overall Fort Worth vacancy rate was 13.7 percent in the first quarter of 2017, up 2.1 percent from the prior quarter. Vacancy rose from 9 percent in the first quarter of 2015 to 11.5 percent during that period in 2017, and sub- lease vacancy rose from 0.3 percent to 0.7 during the same time frame. Contributing to the rise in vacancy rates is the loss of notable longstand- ing tenants, including construction firm D.R. Horton, law firm Shannon Gracey Ratliff & Miller, and Radio - Shack. There is also a concern as to whether XTO Energy will stay in Fort Worth or consolidate in Houston. Another contributing factor is the movement of many established Fort Worth tenants from the CBD to the newer developments west of town. For example, mining company Lhoist North America Inc. moved its opera- tion southwest, going from 3700 Hu- len St. to 5600 Clearfork Main St. London-based medical equipment manufacturer Smith & Nephew, which is consolidating its St. Petersburg, Flor- ida, offices, also plans to lease space at 5600 Clearfork Main St. for its world management division's U.S. head- quarters. This move comes after the company's acquisition of Fort Worth- based Heathpoint Biotherapeutics. Consistently Stable Rates Though vacancy rates have in- creased, market rental rates remain relatively stable. This is because long- term private real estate holders own the majority of Fort Worth's office space. These holders understand the boom-bust nature of the energy cycle and think long-term when making real estate decisions. The projected increase in oil and gas production is also contributing to sta- bility. Drilling activity in the Permian Basin is creeping upward since reach- ing its lowest point in five years, and prices are reaching levels that allow operating expenses to be profitable again. As oil prices increase, real estate interests tied to oilfield service compa- nies will increase as well. Chisholm Energy Partners, which leased 22,000 square feet at 801 Cher- ry St., exemplifies the growth from rebounding energy prices. Other oil and gas firms expanding their real es- tate footprints include Encana Corp., which has subleased space at 420 Throckmorton; and Blackbeard Oper- ating LLC, which leased 10,000 square feet lease at 1752 River Run. Jetta Operating broke ground on its new downtown headquarters, the aforementioned Frost Tower, in Q4 2015. At that time, West Texas Inter- mediate (WTI) crude was trading at $37 per barrel. A couple months after construction began, Frost Bank leased space at the property. Oil and gas is not the only confi- dent industry in Fort Worth. In 2016, Lockheed Martin renewed both its of- fice leases in Fort Worth, affirming the company's commitment to the city's defense sector. Calcomp Inc. and C&S; Propeller, two aviation companies, both relocated from California to Fort Worth and signed 25,000-square-foot and 18,000-square-foot leases, respec- tively. Fort Worth's healthcare sector also gained two new companies: Creative Solutions in Healthcare and Rx.com, which leased 13,000 and 22,000 square feet, respectively. As oil prices rebound and the Texas economy grows stronger each day, Fort Worth will continue to benefit with steady, strategic investments in its office sector. Mike Otillio Director of Research | Dallas Colliers International STEADY DEVELOPMENT, RECOVERING OIL PRICES ANCHOR FORT WORTH OFFICE MARKET Source: CoStar/Colliers Research Vacancy and Average Rental Rate in Fort Worth UPCOMING EVENTS InterFace Healthcare Real Estate Carolinas June 1, Charlotte, N.C. InterFace Carolinas June 1, Charlotte, N.C. InterFace Seniors Housing Midwest June 7, Chicago www.InterFaceConferenceGroup.com Source: Baker Hughes North America Rotary Rig Count Rig Count Permian Basin As the drilling side of the oil industry picks up, office vacancies in Fort Worth should decline.

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