Strong and consistent Class A office fundamentals continue to heat up the office market. During the first half of 2018, both the suburbs and the CBD have been very active.
Downtown Fort Worth saw its first new high-rise office tower, Frost Tower, open since the Pier 1 Building was delivered in 2004. The property landed the accounting firm Whitley Penn, quickly bringing the building to over 70 percent leased. After the addition of Frost Tower, the inventory downtown reached 10.4 million square feet. The submarket now accounts for approximately 25 percent of the total office space and 33 percent of Class A space in all of Fort Worth.
Average asking rents across both Class A and Class B buildings have increased since last quarter, and the growth continues to be consistent since 2014. Class A space now averages $30.76 per square foot, which is on par with Class A space throughout the rest of the Dallas-Fort Worth market and Suburban Dallas, but higher than Suburban Fort Worth. However, net absorption was approximately the same across Downtown Fort Worth (76,842 square feet) as all of Suburban Fort Worth (86,825 square feet) for the second quarter.
Vacancy in the downtown market is up, but not because of sublease space. In fact, sublease space is down below its 10-year average and concentrated primarily in two buildings with 80 percent of available Class A sublet space in the Pier 1 Building.
A positive sign for the Fort Worth market is that investment interest in downtown has heated up over the past six months.
Recently, Sundance Square Management purchased the 93,800-square-foot Petroleum Building from XTO. Pier 1 Tower is under contract to an out-of-state investor and should close in late August. Burnett Plaza is another prominent CBD property currently listed for sale. This property has 1,024,627 square feet of Class A office space with an additional 1.46-acre development site adjacent to the property.
Two XTO properties, 714 Main and the W.T. Waggoner Building, should close in the fall. Tarrant County College also has put the May Owens Center complex, located at the south end of downtown by the Omni Hotel, on the market. Activity to convert the XTO and TCC properties to hotel and/or residential uses has been red hot.
Overall, the Downtown Fort Worth office market has remained stable over the last several quarters, and we continue to have positive absorption. Look for new construction announcements soon in the West/Southwest market as vacancy continues to drop. Although limited new construction is currently occurring, Fort Worth remains at the peak of the economic cycle with no expectation for a downturn in the near future.
By Todd Burnette
Managing Director for the Fort Worth office of Jones Lang LaSalle