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Chase, Caterpillar, Google, Amazon—Breaking Down Other Big Deals in the Market

Unprecedented. That’s how local real estate brokers and economic development officials are describing office leasing activity in Dallas. Toyota’s big headquarters relocation has brought to light other big searches under way—all adding up to millions of square feet in new demand.

Off-the-record talks with about a dozen real estate sources revealed the following prospects: JPMorgan Chase (1 million to 1.4 million square feet), Caterpillar (1 million square feet, headquarters relocation), Google (1 million square feet), Charles Schwab (300,000 to 350,000 square feet, relocation from San Francisco), TD Ameritrade (300,000 square feet), CoreLogic (350,000 to 400,000 square feet), and Fidelity (300,000 square feet).

There are at least three big “blind” searches in the market as well. One of them bears the code name “blizzard,” sources say. The largest is 1 million square feet, the second is 400,000 square feet, and the third is 350,000 square feet.

A rendering of KDC's CityLine project in Richardson.
A rendering of KDC’s CityLine project in Richardson.

All of this is on top of the 1 million to 1.4 million square feet that Toyota will build in Plano, the 2 million square feet State Farm is taking at CityLine in Richardson, the 500,000 square feet Raytheon also is taking at CityLine (sources say Raytheon is looking for more space beyond that), and the 265,000-square-foot headquarters for FedEx Office in Plano.

KDC is developing the State Farm, Raytheon, and FedEx Office projects. A developer for the Toyota campus has not yet been named, although it’s planned for land surrounding JCPenney’s headquarters in Plano.

Additionally, Amazon is on the brink of signing a lease for as much as 100,000 square feet in Two Galleria at Interstate 635 and the Dallas North Tollway, sources say.

The Big Winners

So far, Plano and Richardson have been the big winners. Irving also is seeing its share of activity, with headquarters deals for Epsilon, American Eagle (now called Envoy), and 7-Eleven Inc. In Preston Center, Bandera Ventures has filled its 197,000-square-foot tower with big leases from Chief Oil and Gas and Energy Transfer Partners.

Uptown just won a 109,000-square-foot commitment from Gardere Wynne Sewell LLP, which is kicking off Crescent Real Estate Holding’s stunning new McKinney & Olive tower. (Sidley Austin, which just signed short-term deals for 64,000 square feet in Trammell Crow Center, is expected to eventually move to McKinney & Olive, too.)

And on the other side of Klyde Warren Park, Craig Hall’s new Arts District tower is filling up, with KPMG, Jackson Walker, and UMB Bank among those taking space in the 450,000-square-foot building.

Even the downtown core is starting to see some leasing activity, after a flurry of office property trades. Woods Capital acquired Thanksgiving Tower and secured a 350,000-square-foot commitment from Satander Consumer USA; and KPMG Centre, which was just sold to World Class Capital Group, is in line to pick up leases from three companies controlled by Austin-based Vista Equity Partners: Omnitracs (200,000 to 300,000 square feet), Lanyon Inc. (75,000 square feet, from Irving), and Active Networks (125,000 square feet, from San Diego).

A few sources said they’re concerned that the activity could lead to overbuilding, as Dallas developers are famous for their “build it and hope they will come” approach. But most say they aren’t worried, because, this time around, capital sources are restricting financing—and because the demand is real.

John Crawford
John Crawford

“In past cycles, we would hear a lot of rumors about corporate relocations, but now, all of a sudden, things we had been hearing about are beginning to happen,” said John Crawford, president and CEO of Downtown Dallas Inc. “Some (companies) are not far enough along in the relocation process to be able to say if they’re going to happen or not, but they’re all out there circling around North Texas and Dallas, and some are going to land here. After State Farm and Toyota … success breeds success.”

The size of the companies, and the deals, is staggering, Crawford said:  “As it relates to other cycles, I’ve never seen anything like it. And these are not short-term deals. Executives are creating 15- to 20-year plans to create opportunities for their employees. In my experience, two things are going to happen: the initial numbers will grow exponentially larger, and there will be a number of vendors who will want to cluster around big relocations.”

Driving Demand

Universally, real estate sources say relocation demand is coming from three markets: California, Illinois, and the northeastern United States. The cost of doing business is much higher in these “heavily taxed, heavily regulated” regions, brokers say, and Texas Gov. Perry and local economic development officials have not been shy about targeting corporations there.

Qualify of life is becoming a bigger focus in relocation decisions, Crawford said, and Dallas has made great strides in those areas, with projects like Klyde Warren Park, DART’s expansion to DFW Airport, and the convention center hotel. “The Wright amendment and the opening up of Love Field is another important ingredient,” he said. “We now have a big red wagon full of benefits.”

Phil Puckett
Phil Puckett

Along with suburban build-to-suits, an urbanization trend is happening, said Phil Puckett, executive vice president at CBRE. “There’s no denying it’s different this time,” he said. “Downtown, in my mind, has never been a living environment, but people are living there now. The core of downtown is getting much better, and will become a hot area over time. Victory Park is going to become what it was intended to be. Dallas is becoming a cool town.”

In the past, real estate was a game of musical chairs, Puckett said. Now, the market is seeing both relocations and expansions of existing tenants. A specialist in the Uptown and downtown submarkets, Puckett works with a number of law firms. Perkins Coie, he points out, came to Dallas a couple of years ago, initially leasing 2,000 square feet. It’s now up to 36,000 square feet. Sidley Austin is expanding, and Holland & Knight and McGuireWoods are both new to Dallas.

Unlike Houston, which is on fire due to oil-and-gas projects, demand is much more diverse in North Texas. This makes it more stable, Puckett said. “I just wish I was younger,” he said. “It’s exciting to see what we are starting to see for DFW in a big way. And I think it’s just the tip of the iceberg.”

So, what about supply?

Most of the larger relocations will require build-to-suits. But landlords with existing and spec space are seeing brisk activity, too, in both volume and velocity of deals.

Bill Cawley
Bill Cawley

“I’ve never seen anything like it,” said Bill Cawley of Cawley Partners. “It’s real activity, and it’s great. We’re building two buildings, and we’re getting pro-forma rents or better, which isn’t typically the case. At Knoll Trail Plaza (120,000 square feet), we have only 12,000 square feet left to lease, and we haven’t tilted a panel. At Legacy Center (170,000 square feet), which will break ground Aug. 1, we have leases out to four or five tenants to take the whole building.”

Cawley said there has been big movement in what tenants are willing to pay for space, with many new projects getting “unprecedented” rates of $40+ per square foot. He’s not worried about the market becoming overbuilt, at this stage of the game.

“I think we’re in a healthy space,” he said. “We will see more buildings get announced, and farther in the cycle there will be more risk, but demand is greater than supply at this point. There is a lot of new product coming online in Legacy, but companies that want to be close to Toyota and others will come in and eat up all that office space.

“It’s the first time I’ve ever seen the Dallas market with so much new absorption, so many relocations,” Cawley said. “Usually we’re just stealing a tenant from another building down the street.”

Greg Biggs
Greg Biggs

Greg Biggs is representing Encana in subleasing its 320,000-square-foot tower in Legacy business park. (The company announced last year that it would close its Plano office.) Biggs said the building is attracting a lot of interest, with two to three tours per week. It’s believed to be the largest contiguous block of existing space in the far North Dallas area.

Availability of office space is a “submarket by submarket” consideration, Biggs said. There’s plenty of land for new development, he said. However, both land prices and construction costs have increased over the past 12 months.

Along with relocations, Biggs said he’s seeing a lot of organic growth, too. “When a tenant is served a notice of right of first refusal, with maybe another tenant needing that space, they’re taking it for their own growth. That’s something we haven’t seen in a long time.

“In my 28 years of tenant representation in Dallas, this is the most active market I’ve seen,” Biggs said. “I think this is going to continue for the next 10 years.”

Cawley is bullish, too. “I think we’re early in the game, maybe about 18 to 24 months behind Houston,” he said. “We’re going to see a lot more going on. We’re just getting started.”

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