The hottest office market in Dallas in the last six months has been the Legacy and Dallas North Tollway area. The only spec office building in the market of any significance is under construction there, and developers are fighting over the good remaining development sites. Trammell Crow just announced the purchase of a furniture store at Legacy and the Tollway, with plans to develop an office facility.
Buildings are being sold for great pricing (from a seller perspective), causing current property owners to hold or raise their quoted rental rates. The lack of good lower-cost options to consider has also caused tenants currently in the market to decide to look down the Tollway for buildings willing to be more aggressive on their rental rates and terms. Tenants from downtown are moving north to get closer to their workforce, with the availability of good quality buildings at good rental rates.
With some tenants moving south from Legacy and north from downtown, as well as some LBJ tenants moving up the Tollway to get away from the road construction, the Tollway strip that runs north to State Highway 190 is beginning to tighten considerably, with quality options beginning to get leased up. Emcare just moved from downtown to lease 100,000 square feet of the old Tenet Healthcare Corp. space. Two midsize tenants have moved off LBJ to the Coca-Cola building. And Wingspan just leased 135,000 square feet of a building on the Tollway south of S.H. 190.
Rental rates will rise as good options get gobbled up. They need to be in the mid $20s per square foot. To justify development of suburban building with surface parking, developers that are buying sites are not going to hold the land; they are going to want to design a building and break ground ASAP to prevent the other guy from doing the same thing.
Many companies are stockpiling cash and putting off big real estate decisions until after the election, hoping to get a more conservative government in the White House that will be pro-business and provide tax incentives that promote growth. Whether the current administration wins reelection or the Republicans take back the White House, many companies that have been holding off will start making decisions after the election, driving more job growth and in turn office absorption.
If you’re a tenant on the Tollway, now is the time to make a deal. Rents are about to move up, as good buildings get leased up. The hot Legacy market is the Tollway’s best friend. It will continue to drive tenants south. The market is about to get tight and rents are going to spike! Can you feel it?