Written by Nick Lee, SIOR, CCIM and Jeremy Brubaker

The Dallas-Fort Worth Metroplex has been one of the fastest growing regions in America for over a decade. In that time, new developments have popped up everywhere and it is no surprise why this area continues to thrive with its population expected to exceed 6 million people by 2032. Corporate relocations, an increase in population, infrastructure, and land availability (although going quick), are all reasons DFW is attractive to large companies, investors, and developers alike. This begs the question to those making a move or investments, is the urban or suburban landscape going to benefit your bottom dollar?

As leases expire, and the pandemic still lingers on, large corporations are moving out of their downtown office buildings and opting for newer, and at most times, cost effective suburban solutions. According to CoStar data, the top 5 vacant office towers in Dallas are One Main Place (41% occupancy), 1700 Pacific (40% occupancy), Renaissance Tower (38% occupancy), Bryan Tower (35% occupancy) and Fountain Place (17% occupancy). This is a stark contrast compared to the rapid growing submarkets with low vacancy rates like Preston Center’s 9% vacancy and the 16.5% vacancy found in the Legacy & 121 submarket. One might think this is another after-effect of Covid-19, but this trend has been occurring long before the pandemic started and has no plans to slow down. In fact, the Dallas-Fort Worth area has been one of the top markets across America for pending office deals. While companies seek to entice their employees back into the office, cities have taken action to entice companies into their areas.

The city of Dallas recently approved plans to move forward in building a new 2.5 million square foot convention center that will cost up to $2 billion but it’s not just the construction itself that has people excited; there are also plans for surrounding projects such as hotels and restaurants being funded by tax revenue from this project. The Dallas Morning News reports Dallas as the top leader in the country for hotel projects in the first quarter of 2022, coming in on top with 165 total projects, followed by Atlanta (135 projects), Los Angeles (123 projects), New York (122 projects), and Phoenix (103 projects). Could the redevelopment of the convention center and surrounding area be enough to turn the tide of this rapid trend?

Developers have found that by concentrating their efforts outside of the urban core, they can complete projects without additional costs and complexities. This is because infill sites tend to be smaller or require more prep work. However, developers are not the only ones looking at cost-reduction, tenants and their workforce are also eyeing the affordability the suburbs and surrounding commuter towns can provide, in addition to safer surroundings to raise their families in. According to a recent study, Texas has three of the top 10 safest cities in the U.S. with Frisco at number one, McKinney at a close second and Plano coming in at number nine. Frisco and Plano also rank in on the affordable factor as well.

Although the suburban office market has steadily performed better than urban since the start of pandemic, there are a few caveats to this trend but with commuter towns rapidly growing and fueling the commercial real estate development, topped with dwindling land availability, the wave of demand in the suburbs may override that of the urban area but only time will tell for now. What are your predictions?

Nick Lee, SIOR, CCIM: nlee@nairl.com, 214-256-7121
Jeremy Brubaker: jbrubaker@nairl.com, 214-256-7118