This week, the Wall Street Journal painted a stark picture of downtown St. Louis. It dubbed the area’s office district a “doom loop” and pointed to cities trying to save themselves from a similar trajectory, such as San Francisco and Chicago.
Anecdotally, the publication surfaced a 44-story tower once anchored by AT&T Inc. that traded hands for $205 million in 2006. The Journal reported the St. Louis building, which now stands empty, recently sold for $3.5 million.
It’s a grueling picture as cities across the U.S. cope with the post-pandemic hybrid work reality defined by an office sector of haves and have-nots.
In North Texas, new, amenity-rich offices win new tenants, as do those existing buildings willing to put in significant investments to keep and lure small and mid-sized tenants. That is, during a favorable financing climate.
A common refrain in Dallas are those companies taking their large-scale leases from downtown to Uptown.
Downtown Dallas’ office vacancy rate sits at about 26.5%, according to research from Partners Real Estate. That’s not the highest in the nation, but it’s still high, according to Steve Triolet, Partners’ senior vice president of research.
Contributing to the vacancy rate are some of the subleases that have rolled over to direct vacancy, in addition to Class B offices weighing down the central business district.
“When you think about the types of companies that we have here in Dallas compared to Houston or Boston from an office perspective, we represent the nation as a whole,” Triolet said. “This is not just a downtown Dallas problem. All downtowns have this problem.”
Fort Worth is much healthier, he noted, pointing to the city’s 11.5% vacancy rate.
One headwind to the office occupancy problem is corporate America’s reluctance to force employees back five days a week, instead opting for a hybrid model.
However, with many companies asking employees to share the same in-office days, businesses are hard-pressed to cut down their square footage when the same amount of desks are required.
In contrast to the rest of the country, Triolet noted, this region is the fastest-growing in the nation when it comes to in-migration. Dallas-Fort Worth’s main competition is other Texas markets, such as Austin, Houston and San Antonio, though Memphis, Denver and Atlanta rear their heads as well.
Office conversions to hotel space and residential units continue to be a bright spot for downtown. Not only does it take vacant office space off the docket, but it holds potential.
“These represent some diamonds in the rough, but are not the cure,” said Triolet.
It’s too early to count the success of these, especially as many await to see the pricing of the dwelling units.
The other wait-and-see element is just what will happen with large chunks of office space that will require backfilling in downtown Dallas.
JPMorgan Chase, which recently expanded its lease at the Hunt building, is the outlier that remained downtown when it left its namesake building a few years ago.
But Deloitte, Goldman Sachs and Bank of America will leave large holes as they hightail it for Uptown in the coming years.
Those three firms alone represent nearly 1 million square feet of space combined.
