How Downtown Fort Worth’s Office Oversupply Could Help It Lure Big Tenants
The Downtown Fort Worth office market has more supply than demand. Any economist would say that is a bad thing. But those who know the submarket best think the oversupply could help it finally lure some big tenants and corporate relocations that keep choosing the North Dallas suburbs.
“We’ve always had a challenge of not having enough contiguous space to market to corporate and regional headquarters,” Chamber of Commerce Executive Vice President of Economic Development Brandom Gengelbach said. “We’re at an exciting time with new construction.”
The 8.4M SF market is 13% vacant, according to CBRE Research. When the 315K SF Frost Tower delivers in 2018, it will bring more space online. Frost Tower has about 133K SF left to lease.
Two recent relocations out of the submarket could also hit the vacancy rate hard. In June, the nation’s largest homebuilder, DR Horton, moved out of its namesake tower to a new campus in Arlington.
Days later, XTO Energy announced it would sell six of its seven office buildings on Houston Street and relocate 1,600 employees to the campus of its parent company, Exxon Mobil, in The Woodlands.
“We’re a little out of whack right now with supply and demand,” Transwestern principal Jack Huff said. “DR Horton and XTO create more supply. We could be looking at 2M SF of vacancy Downtown. We’ve got a bit of an office supply hangover.”
Many take comfort in the fact that DR Horton and XTO moved because of business decisions.
“Both of those things didn’t necessarily have anything to do with the desirability of Fort Worth as an office location. It’s not like they were unhappy here,” Huff said.
Walters describes the mood Downtown as somber. “XTO is our anchor tenant and the only Fortune 500 company we can really claim since American Airlines is in Centreport,” CBRE Senior Vice President David Walters said. “There are lots of good people [at XTO], so this kind of hurts.”
XTO will relocate 1,200 employees in mid-2018 and another 400 in 2020, leaving the remainder of its team to occupy a to-be-determined office that it already owns. JLL is working with XTO on selling six of its seven renovated offices.
Despite DR Horton and XTO, Downtown Fort Worth Inc. President Andy Taft said retention is high. Downtown Fort Worth is succeeding in many ways other downtowns are struggling: It is clean, safe, well-parked and well-managed, he said.
“The upkeep and renovation of buildings is strong and we have a great amenity pool for tenants,” Taft said.
Through that lens, all of this empty space is an opportunity to capture more demand. The Chamber, DFWI, the economic development department and many others are seeking out ways to do so.
The Chamber has a four-year plan beginning in 2018 that it will present to stakeholders and partners this fall. The economic development department is doing the same and will seek City Council approval for its strategy.
“We have a close partnership with the city, but some of our roles are not theirs and some of their roles are not ours, so we work jointly. We involve many other community partners also,” Gengelbach said.
The Chamber’s strategy spearheads more marketing efforts.
Taft thinks marketing outside of the region would bring more tenants. “The region understands who we are. Marketing to national and global [tenants] is where we need to be investing our marketing resources,” he said.
Many stakeholders share Huff’s attitude: “If we can get tenants to look here, we’ll sell ourselves.”
Walters thinks existing tenants will play a critical role downtown.
“I’m hoping for organic growth from companies already here. I don’t think it will take down all our vacancy, but it will chip away at it,” he said.
The future of XTO's offices is undecided. Many say the buildings may not remain single-user office space — or office space at all.
“There’s been no shortage of suitors [for the XTO buildings],” Taft said. “We’ve had a few calls from people who want to own property Downtown, most have been residential and hospitality users — but a few office users.”
If the offices were repurposed to hotels or residential, the space could become an appealing amenity to office users.
“We’re working with the city, economic development department and Downtown Fort Worth Inc. to come up with a plan to provide the best and highest use for the offices,” XTO Communications and Media Adviser Suann Guthrie said.
Regardless of what becomes of the XTO offices, Downtown Fort Worth still has around 1M SF to fill.
“Availability of space was our first problem. We simply didn’t have the number of contiguous floors. Now we need to remind the world that we’re here,” Taft said.
