Can the CBD Survive the New Construction?
Yesterday, KDC and Invesco broke ground (and a few fashion rules with those white hard hats post Labor Day) on a new 150k SF office project in Uptown. It happened at almost the same time that the nearby 500k SF KMPG Plaza at Hall Arts was topping out. They’re not the first projects to come out of the ground in Uptown and just across Woodall Rodgers in downtown, so should we worry about oversupply and what will happen to the aging downtown towers? Probably not, says Pegasus Ablon Principal Michael Ablon. These new projects are typically best-of-class, which means you’re not going to see a deluge of construction because of the prohibitive capital markets and development costs keeping the developers at bay.
Transwestern principal Sanders Thompson says the new construction tends to range in the 150k SF to 400k SF, which makes it easier to get out of the ground because they’re only having to pre-lease up to 200k SF. The last cycle—2000 McKinney (442k SF) and Rosewood Court (406k SF), for example—came out of the ground essentially full. Additionally, big tenants are moving out of the '80s-era downtown buildings in search of contemporary space. (Look at KPMG and Jackson Walker, which are moving into Hall Arts from downtown.) They’re compressing 25 to 30% to justify the increased rent in their new homes for the next 10 to 15 years. Uptown’s appeal has also bled over into downtown as far as Ross Avenue, Sanders says.
Sanders says there’s been a mass exodus from Elm Street as well as some on Main Street in the CBD. However, those spaces (901 Main, Renaissance Tower, Thanksgiving Tower, 1700 Pacific, etc) are being backfilled with back-office users because they’re attracted to the big floor plates and $17/SF rents. He thinks some of the Uptown, and even Preston Center, tenants may start moving back to the CBD to escape the $45/SF rents. Michael, who repositioned the former Lincoln Tower (now Ross Tower) by modernizing the building and adding the 3:1,000 parking ratio, says downtown can survive in harmony with the newer, shinier Uptown. You can’t argue with the price-point, he says.
