Tenants and investors remain confident in the long-term prospects of the Fort Worth office market

Hillwood recently opened this speculative 135,000 square foot office building in Alliance Town Center. As the market displays a flight to quality, landlords are banking on the belief that the inclusion of high-end amenities will effectively attract tenants to the office.

By Marshall Mays, Vice President, Colliers

Dallas-Fort Worth (DFW) is currently a hot market for commercial real estate, with people from all over the country moving to the area every day.

The metroplex’s population is growing at an annual rate that rivals that of other major US markets, including Austin, its neighbor to the south, often considered a more glamorous city.

With the growing number of businesses moving to Texas and new offices opening, the urban core of Fort Worth has become an especially popular destination for industry growth in Texas.

Marshall Mays, Necklaces

Marshall Mays, Necklaces

The market today

Fort Worth’s office market performance has been particularly encouraging since the start of 2021. Overall, the city’s office vacancy rate currently stands at 13.3%, down from a high of 14% in the time of the pandemic in the third quarter of 2020.

This positive trend is helped by a faster “return to power” within DFW. According to research from Kastle Systems, a security company that provides access control systems for office buildings around the world, Texas as a whole has outpaced major cities and other states in speed and degree recovery of office occupancy rates.

Kastle Systems has released weekly data on physical office occupancy throughout the pandemic. According to the company’s Back to Work Barometer Average, which studies 10 major cities, major metropolitan areas in Texas have outpaced the field. With the most recent data points arriving on May 18, the average physical occupancy in the 10 cities surveyed was 43.3%.

At the same time, the metropolitan areas of Austin (61.2%), DFW (52.6%) and Houston (56.4%) are the only cities to show physical occupancy rates above 41%. As such, these subways are effectively leading the pack when it comes to physically returning to buildings. The metropolitan areas of San Francisco (33.4%), Philadelphia (38%) and New York (38.2%) are the worst performers on the list.

Specifically, the Fort Worth office market has seen over 140,000 square feet of positive net uptake of space since the start of 2021. Leasing activity involving large blocks of space – 10,000 square feet or more – has been sporadic. However, transaction speed has accelerated for smaller needs of 8,000 to 10,000 square feet or less.

We continue to see a flight-to-quality trend, with many users looking for new construction and renovated, highly-appointed buildings. This trend reflects employers’ efforts to establish their office environments as places where employees actually want to be versus where they are required to be. Landlords are responding to this tenant desire by considering or moving forward with adding amenities to buildings that lack them and further rethinking what those amenities are.

Before the pandemic, the typical set of amenities for an office building was a fitness center, conference center, and deli/dining room in one form or another. Coming out of the pandemic, tenants are very focused on conference rooms and now care more about green spaces and outdoor spaces for their employees to decompress.

We are seeing more and more landlords introducing indoor and outdoor tenant lounges which are wired for Wi-Fi and can also include putting greens, yard games, streaming lounges and various seating options. Newly built office buildings are also increasingly part of, or near, mixed-use developments that provide a “live-work-play” atmosphere, particularly when it comes to urban infill locations.

Market challenges

As is the case with major markets across the country, one of the main stories in the Fort Worth office market centers around rising costs. We have seen upward pressure on proposed rents for offices in Fort Worth due to increased construction costs for new developments, as well as capital expenditures and tenant finishes in existing buildings.

Tenants have shown a willingness to accept these rent increases as long as tenant improvement dollars paid by landlords also increase. Along with rising costs, many construction jobs are also experiencing delays due to ongoing supply chain issues which, as is the case around the world, are being hit hard in Fort Worth.

Because of these delays, many tenants are starting to look for new space earlier than before the pandemic. For example, a mid-size tenant in Fort Worth with a need in the range of 2,500 to 3,500 square feet would likely have started their search for office space three to six months after their planned move date. Today, many of those same tenants begin their search within seven to ten months so they have more time to complete the interior designs of their new spaces.

Despite construction and other challenges, developers remain optimistic about Tarrant County as a destination for office users. There are currently five buildings totaling 297,500 square feet of Class A office space under construction in Fort Worth. An additional 2.2 million square feet of projects have been proposed and could potentially be added to the development pipeline.

The brokerage community views this as a positive indicator of the market’s long-term outlook and proof that Fort Worth is a growing market that is desirable for users and investors.

This article originally appeared in the June 2022 issue of Texas real estate business magazine.

Jose C. Birney