For more detail from the Tarrant County Commercial Real Estate Forecast sponsored by the Real Estate Council of Greater Fort Worth, see the special section in this week’s paper. For additional copies, contact Lauren Vay at firstname.lastname@example.org
Falling oil prices and rising overseas inventory are hitting downtown Fort Worth, with energy companies retrenching or pulling operations out of the Central Business District.
“Operators and service companies such as Encana, Regency, Weir SPM, Forestar [Group] and Frac Tech [FTS International] have downsized or closed office locations with expected announcements of more closings to come,” said Todd Burnette, managing director of JLL’s Fort Worth office. JLL is a financial and professional services firm that specializes in commercial real estate services and investment management.
But Burnette – and other industry observers — described a robust commercial real estate market Jan. 21 at the 2016 Tarrant County Commercial Real Estate Forecast at the Fort Worth Convention Center.
Echoing that sentiment was David Berzina, executive vice president of economic development with the Fort Worth Chamber of Commerce.
“This is not your grandparents’ Fort Worth anymore,” said Berzina, pointing to a city reshaping itself with cutting-edge retail, residential and office trends while remaining true to its roots.
“Of all the nation’s largest cities, Fort Worth has the third fastest-growing economy,” said Berzina. It is adding a new resident every 25 minutes and ranks 14th nationally among states luring California companies to their respective locations.
After reviewing projects already underway, Berzina announced the first apartment community for Panther Island, the 800-acre development formerly known as Trinity River Vision connecting downtown and the Fort Worth Stockyards.
“The vision is becoming reality and is on track for completion in 2023,” said Berzina. He said a formal announcement for the 200-unit multifamily property will come in March 2016.
While attendees applauded the Panther Island announcement, they also discussed an uncertain energy industry and what challenges plummeting oil prices may bring.
DOWNTOWN STRUGGLES, SUBURBS SURGE
For the city’s office market, those challenges affect both suburban and downtown areas.
“While the suburban markets have been booming, the CBD (Central Business District) has struggled with the impact of dropping oil prices,” said Burnette. While downtown’s vacancy stands at 13 percent — “… down from a high point of 17 percent at the end of 2014,” Burnette said — it’s being chipped away by numbers of subleases put on the market by oil and gas-related companies.
More than 150,000 square feet of Class A sublease space is available in the CBD, with 100,000 more square feet that could be put on the market later this year.
Still, overall downtown office vacancy is improving as suburban tenants see limited options away from the urban core. Absorption, both suburban and in downtown, is its highest since 2008, Burnette reported. Numbers of large leases have risen, with new projects at the Clearkfork development and the CBD representing more than 578,000 square feet.
What to expect later this year?
“New office … will continue to push rents up — suburbs and CBD,” said Burnette, foreseeing CBD vacancy dropping below 10 percent, parking ratios continuing to expand by five spaces per 1,000 square feet while population and employment growth remain strong throughout the year, fueling the market.
Despite the murky energy industry outlook, Burnette said Fort Worth will be somewhat insulated from its effects.
“Although energy jobs have declined recently, they are not the main driver of the Fort Worth office market and will continue to play a minor role with exception of sublease inventory,” Burnette said.
Citywide, the economy continues to expand. Net job growth in 2015 resulted in more than 26,000 new jobs.
“These new jobs are fueling strong population growth and improved office absorption,” Burnette said.
Looking ahead to the rest of 2016, Burnette predicts tenant finish-out costs will rise by more than 10 percent, triggered mostly by labor.
“As the Fort Worth market tends to lag Dallas, expect strong rent growth,” Burdette said.
RIDGMAR SPECULATION MOUNTS, RETAIL THRIVES
Growth also describes the city’s booming retail sector, adding storefronts along West Seventh Street, Clearfork and other upscale developments while fulfilling projects previously under construction.
“In 2016, we will witness the completion or near completion of retail developments started during the 2015 calendar year,” said Stephen Coslik, chairman of The Woodmont Co.
Those include Trademark Property Co.’s Waterside development, anchored by the hotly anticipated Whole Foods Market; WestBend along South University Drive, anchored by The Fresh Market; and Presidio Towne Crossing in North Fort Worth along Interstate 35W.
But the race to retail doesn’t stop at mixed-use developments; it extends to outlet malls. Exactly who builds an outlet mall across from Texas Motor Speedway is expected to be determined later this year as The Woodmont Co. and Tanger Outlets duke it out to claim bragging rights for the first outlet resource across from Cabela’s at I-35W and State Highway 170.
Berzina spoke of Tanger Outlets’ planned 350,000-square-foot project at the Champions Circle development near the speedway. Meanwhile, Woodmont plans to construct an outlet mall on 45 acres it’s contracted to purchase from Hillwood Properties, the developer of AllianceTexas.
Coslik confirmed that his company’s outlet plan in the same area remains on track. “I would dare say, a year from now, we will know which development will be the successful development,” Coslik said.
Meanwhile, Wal-Mart continues to make inroads even as the retail giant announces plans to shutter some locations nationwide. That’s not stopping North Fort Worth and Grand Prairie from gaining a Wal-Mart Supercenter, one in each city, with construction already underway or planned to begin this year on five Wal-Mart Neighborhood Markets throughout the greater Fort Worth area. On tap for North Fort Worth is a 150,000-square-foot Sam’s Wholesale Club.
Not to be outdone, the supermarket sector continues drawing speculation and analysis as H-E-B snaps up locations for future stores — 20 in all, according to Coslik, though opening dates have not been announced.
Meanwhile, Kroger plans three to four locations under the company’s Marketplace banner, most of which are planned in greater North Fort Worth.
“Albertsons/Tom Thumb looks like it is sitting on the sidelines as a result of Albertsons still digesting its acquisition of Safeway (Tom Thumb, locally),” said Coslik.
Perhaps the elephant in the retail real estate room is Ridgmar Mall, whose future is anyone’s guess.
“I think Ridgmar Mall is going to be facing a crossroads. It will either be an opportunity or a real challenge,” said Coslik. Mall owners are facing the departure of two of its five anchors. Neiman Marcus is pulling up stakes in 2017, with Macy’s planning to do likewise in the first half of 2016.
“Will their departures provide an opportunity to ownership so that they may successfully rebirth the property or will it signal the demise of the mall as we have known it? Time will be the best judge,” Coslik said.
What Coslik described as perhaps the city’s “greatest quiet surprise” is what he called the remaking of retail in downtown Fort Worth.
“Johnny Campbell and his team have done a remarkable job of bringing retail back to life in downtown, most notably with H&M undertaking a flagship store in the old Barnes & Noble,” said Coslik. Campbell is the president-CEO of Sundance Square.
“But the big question both locally and nationally is the future of retail,” said Coslik, blaming retailers themselves for stocking the same merchandise in the same setting.
Coslik pointed to Restoration Hardware’s 80,000-square-foot stores in Chicago and West Hollywood, among other locations, as the future of successful retailing for not only showcasing merchandise, but also integrated a full-service restaurant.
“The consumer is demanding more than just merchandise. They are wanting the lifestyle experience intermeshed with the shopping experience,” Coslik said.
APARTMENT OCCUPANCY, RENTS ON THE RISE
And consumers continue seeking apartments, according to leasing statistics that place Dallas-Fort Worth second only to New York in multifamily properties entering the market last year, according to Drew Kile, a director of Institutional Property Advisors at Marcus & Millichap Real Estate Investment Services.
“Occupancies continue to hover at their highest level in the last 10 years, and rents had another year of growth at a pace not seen in 20 years,” Kile said.
Still, Fort Worth added only 3,600 of the 22,000 new apartments in Dallas-Fort Worth for 2015. Fort Worth apartment occupancy hit 95.3 percent, an increase of 60 basis points. A basis point is a unit equal to one hundredth of a percentage point.
Annual rents grew by 6.8 percent, 1.1 percent higher than in Dallas.
East Fort Worth emerged as the softest submarket for occupancy at 91.7 percent, with rent growth in that area 8.6 percent in 2015, Kile said. In Fort Worth’s urban core, new units pushed occupancies slightly lower to 93.5 percent by year’s end, with annual rent growth at 3.5 percent.
Suburban submarkets dominated in 2015, with the South Arlington-Mansfield area seeing the county’s highest occupancy at 96.6 percent and Grapevine-Southlake the second highest at 96.1 percent.
Job growth, while down slightly in 2015 from 2014, is expected to add between 85,000 and 95,000 jobs in 2016 compared to 101,000 new Dallas-Fort Worth jobs added in between January and November 2015.
“Both occupancies and rent growth in the urban core are expected to strengthen in 2016 as new deliveries drop, but a wave of recent new announcements could bring more new supply beginning in 2017,” Kile said.
With home prices rising faster than rental rates and more young professionals choosing to rent for lifestyle reasons, the demographic drivers remain strong for apartments, Kile said.
“This continued demand, coupled with one of the highest job and population growth rates in the nation, will lead to another year of favorable performance for the area’s apartment owners,” Kile said.
INDUSTRIAL MARKET STRONG, GETTING STRONGER
When it comes to industrial properties, Fort Worth is no slouch. From Facebook’s $1-billion planned data center to a 1.4-million-square-foot Lego facility negotiated by third-party logistics company Excel, ongoing and planned industrial construction accelerated in 2015.
“The availability of land in Tarrant County combined with the influx of companies and people moving to the Dallas-Fort Worth area has resulted in the development community continuing to select Tarrant County for their existing projects and study it for new opportunities,” said Tony Creme, a vice president with Hillwood Properties.
Hillwood’s AllianceTexas made headlines when Facebook announced that its fifth data center worldwide would be located in the mixed-use development.
On the leasing side, the year saw Hillwood complete a million-square-foot spec building and lease it to walmart.com. Meanwhile, BH Properties purchased more than 1.5 million square feet in Fort Worth from RadioShack, with the two largest buildings totaling 1.3 million square feet located on Terminal Road in the Railhead development. Railhead, along with Mark IV, Fossil Creek and Mercantile developments at Interstate 35W and Loop 820, saw their share of transactions for the year.
From South Tarrant County submarkets to Centreport and Great Southwest submarkets in East Tarrant County and those elsewhere, the year saw Dallas-Fort Worth become the nation’s fourth-largest industrial market. At 18.5 million square feet of net absorption in 2015, Dallas-Fort Worth trailed only the Inland Empire in Southern California and Chicago in net absorption and has enjoyed 21 consecutive quarters of positive absorption.
“By the numbers, Greater Tarrant County accounts for approximately 35 percent of Dallas-Fort Worth’s total industrial inventory, or 287 million square feet,” Creme said.
New product currently under construction totals 9.5 million square feet, compared to 2015 net absorption totaling 3 million square feet. That compares to 4.7 million square feet in 2014 and 6.4 million square feet in 2013.
“The result is that Tarrant County was home to many of the largest Dallas-Fort Worth industrial leases in 2015, and the vacancy rate remains below 7 percent,” said Creme, foreseeing similar strength for the rest of this year.
“Overall, the Tarrant County industrial market was very active in 2015, and I see this momentum continuing into 2016 with the aforementioned new buildings that are either planned or under construction,” Creme said.