Cresa Connection: Tollway Corridor - December 2022

Please find December's edition of my monthly update on the North Dallas-Plano-Frisco office market detailing the latest office tenant and building news as well as lease transactions recently signed. 

If you have an office decision to make, please contact me for help with your real estate needs.

Metro, State and National Office Market News

Texas, the national leader for Fortune 500 headquarters, picked up fewer new headquarters this year than at any time over the past five years as economic concerns have made corporations weigh the cost of relocating to Texas. There have been a total of 16 headquarters relocations to Texas this year, down significantly from the 62 headquarters seen in 2021. Most of this year’s relocation activity occurred in the DFW market. Below is a list of the companies that relocated to Texas this year.

Construction activity in the DFW office market has been relatively restrained. Due to the uncertainty generated by the hybrid/flex work model, a shortage of skilled construction workers and rising construction costs, many developers have held off on breaking ground on new office projects. Only 3.7 million square feet of office construction started over the first three quarters of 2022. By comparison, during the period from 2015 to 2019, the DFW office market averaged over 2 million square feet of new construction starts per quarter. 

The amount of sublease space available on the market has put additional stress on the office market. The sublease market inventory has increased by more than 4 million square feet since early 2020, reaching 10.6 million square feet across the DFW office market. Among the most notable spaces to hit the sublease market in DFW recently include Peloton, which put 104,000 square feet on the sublease market in east Plano, Thryv, which put its entire 340,000 square foot campus in the former Braniff Headquarters at DFW Airport on the market and Uber Technologies, which put 100,000 square feet in The Epic in Deep Ellum on the market. The DFW market reported 1.6 million square feet of sublease activity in 2021 and has reported 1.6 million square feet in YTD 2022. 

The return to the office battles between workers and executives have become front and center in today’s office environment. Workers represented by the Communications Workers of America reportedly agreed to a work-from-home extension with AT&T until the end of March 2023. However, they are now saying their employer is forcing workers to come back to the office much sooner. AT&T managers have reportedly already forced back some departments. Some AT&T workers have started a petition demanding the company make remote work a permanent option. Nearly 8,000 AT&T employees have signed the petition and their goal is to get 10,000 signatures. 

Facebook parent Meta will take a $2 billion financial hit by shutting down office locations, terminating lease agreements, subleasing unwanted space and walking away from future investments as revenue growth slows at the social media giant, a sign of the changes tech giants are undertaking as they adopt remote-work policies and face economic headwinds.  While Meta plans to boost investments in its data center footprint, it has closed some workspaces across the country to curb expenses and keep up with costs pursuing long-term investments in its creation of a virtual reality product known as the “metaverse.” As part of the company’s office realignment strategy, Meta has decided not to occupy 589,000 square feet of office space in downtown Austin and, instead, market the space for sublease.  The company will continue its work to realign its office footprint and slow the pace of hiring to operate more efficiently. Meta reported $27.7 billion in revenue for the 3rd Quarter 2022, down more than 4% from the same time one year earlier. The moves have been a worrisome sign for the national commercial real estate market, especially in cities such as San Francisco, New York, Seattle and Los Angeles which rely on blockbuster tech leases for rent growth and spillover demand and provide a source for investor confidence in the market. Meta brought on 3,700 full-time employees in the 3rd Quarter 2022, down from 5,700 workers hired during the same period last year. The company has 87,000 employees as of the end of the 3rd Quarter 2022, a figure projected to remain steady as it moves through the remainder of 2022 and into 2023.

Purchase, New York-based beverage and packaged-foods giant PepsiCo has announced the company will be laying off hundreds of workers in headquarters roles. The cuts will affect the company’s North American beverage business, which is based in Purchase, New York, and its North American snacks and packaged-foods business, which has headquarters in Chicago and Plano. The layoffs are a signal that corporate belt tightening is extending beyond the technology and media industries. The cuts will be heavier in the beverage business because the snacks unit already trimmed positions with a voluntary retirement program. As of year-end 2021, PepsiCo employed 309,000 workers globally, including 129,000 workers in the U.S.  

San Francisco-based startup Codi, which attracted $16 million in Series A investment funding from Andreessen Horowitz, is among the first to try to capitalize on the gaps opened up by hybrid work by allowing multiple companies to occupy the same furnished offices it manages on alternating days. As more companies solidify their hybrid work schedules, it is becoming clear that multiple days per week, their offices are going unused, which opens up possibilities. Codi manages 50 furnished private offices that include desks, huddle rooms, whiteboards and snacks, functioning similarly to timeshare rentals in the hospitality industry. This setup works best with small firms and startups that do not work with sensitive information or need large physical equipment. The business model comes as 90% of companies surveyed by Resume Builder plan on requiring employees to report back to an office at least part of the week in 2023. Many companies are instituting “anchor days” when most workers are required to show up at the office – most often comprising Tuesday, Wednesday and Thursday.

Investment manager PIMCO has handed back the keys to its lender for The Towers at Park Central, an 845,919 square foot, three-building, Class “B” office complex near the intersection of LBJ Freeway and North Central Expressway in north Dallas. Newport Beach-based lender TPG Real Estate Finance took ownership of the asset in mid-October via a deed in lieu of foreclosure after PIMCO “failed to satisfy the extension test due to the departure of Interstate Batteries, causing maturity default” with the lender. PIMCO’s default is the latest sign borrowers are experiencing difficulty navigating the challenging capital markets.

Far North Dallas Office Submarket News

Plano and Frisco ranked numbers one and two in a ranking of the 200 largest U.S. cities to determine the best and worst cities for remote working, according to a recent study from LawnStarter. Nine of the top 25 cities are located in Texas, including five DFW communities. The criteria included seven categories: financial incentives for telecommuters, earning potential, access to coworking spaces, Internet quality, cost of living, safety and amenities. Plano ranks as the 10th most affordable city in terms of rent while also having the 19th highest level of household income. Click Here to View the Full List of Ranked Cities.

Kansas City-based real estate development firm VanTrust Real Estate has announced they are moving forward on a speculative basis with the development of Addison Station, a 12-story, 338,688 square foot Class “A” office tower that will be located in the northwest quadrant of the Dallas North Tollway and Arapaho Road in Addison. The property will feature a rooftop amenity deck, fitness center, tenant lounge with outdoor terrace, conference center, grab n’ go food service and 4.0/1,000 square foot garage parking. The 27,591 square foot floorplates will feature 15-foot slab-to-slab floors with exterior column spacing and minimal corridors to maximize layout potential and space efficiency. The property will also be situated adjacent to the future DART Silver Line that will provide light-rail transportation with a 25-minute ride to DFW International Airport Terminal B. VanTrust expects to break ground in the 1st Quarter 2023 with an estimated delivery date in the 2nd Quarter 2024. VanTrust is currently quoting a rental rate of $37.50/NNN ($23.00/SF) for new space.

Rendering of VanTrust Real Estate's Addison Station (Source: CoStar)

Ryan LLC has broken ground on its 22-story, 409,182 square foot Class “AA” office tower located in Legacy West on the south side of the State Highway 121 service road between Communications Parkway and Windrose Avenue.  Ryan Tower’s (8101 Windrose Avenue) amenity package will include three conference centers (68-, 80- and 180-person rooms), pickleball court, fitness center, yoga lawn, café, coffee bar, WiFi-enabled outdoor terrace with seating and a 4.0/1,000 square foot parking ratio.  Ryan LLC will owner-occupy 200,000 square feet of office space on floors 9-11 and 20-22.  The remaining 200,000 square feet of office space on floors 12-19 is currently being marketed for lease at $44.00/NNN ($17.00/SF) and is expected to deliver in August 2024. The 15th floor, in particular, is intriguing from the standpoint of offering a tenant a private outdoor terrace as part of its space. For more information on Ryan Tower, please see the marketing brochure.

Rendering of Ryan Tower (Source: CoStar)

Coworking giant WeWork is closing its doors on a 58,940 square foot space on the 2nd floor at The Shops at Legacy North (7300 Lone Star Drive), which is situated in the northeast quadrant of the Dallas North Tollway and Legacy Drive in Plano. The space was originally designed for Microsoft and features a creative, tech-friendly environment with 30’ ceilings and plenty of natural light. The convenient location provides walkable accessibility to a host of restaurants, bars and retail shopping.  The space also includes dedicated elevator access to 90 underground parking garage spaces at no additional cost as well as an exterior building signage opportunity. Ownership is currently quoting a rental rate of $32.00/NNN ($13.72/SF) plus Electric ($1.60/SF).

WeWork's space at The Shops at Legacy North

The Frisco site in the southeast corner of the Dallas North Tollway and Lebanon Road formerly slated for a $2 billion Wade Park development that was abandoned after lenders seized the property in 2019 is now about to restart development under new ownership. New York-based developer JVP Management presented a proposed development in November 2021 at a joint meeting with Frisco’s City Council and Planning and Zoning Commission that included 700 hotel rooms, 2,800 multi-family units (apartments, townhouses and condominiums), 1.9 million square feet of office space and 455,000 square feet of retail space. In November 2022, Frisco Planning and Zoning Commission approved a conveyance plat for a 112-acre development called The Mix that included two retail and restaurant buildings, six residential buildings, parking garage and a 9-acre centrally-located park. A conveyance plat typically precedes a property sale or transfer. Dallas-based Streetlights Residential is partnering with JVP Management on the project. Phase one, scheduled for completion in 2026, will include a 40,000 square foot grocer (likely Whole Foods Market), 60,000 square feet of retail and restaurant offerings, residential units and a medical office building. The architectural documents filed with the state of Texas describe an estimated $138 million in construction activity. 

Rendering of The Mix in Frisco (Source: Bisnow)

Houston-based Triten Real Estate Partners has begun construction on a renovation project at 5485 and 5495 Belt Line Road, which is situated along the north side of Belt Line Road and east of Prestonwood Boulevard. The asset is being renamed Work/Shop with the goal of amenitizing the two buildings to provide more of a true retail-oriented office environment. Triten will be building 30,000 square feet of retail and restaurant space and greenspace fronting Belt Line Road and will consist of the following retailers: Muchacho, Luna Grill, Winston’s, Solidcore, Crisp & Green, Van Leeuwen, My Eye Dr., Common Table, Kevin Charles Salon and a steak and seafood concept to be named later. Triten is targeting a fall 2023 delivery on the improvements. 

Rendering of WorkShop at 5485-5495 Belt Line Road (Source: CoStar)

Dallas-based real estate developer Primera Companies has announced plans to start construction in January on the first of two new office buildings (121 Commerce Square) in the southwest quadrant of State Highway 121 and Preston Road in Plano.  Following on the heels of Primera’s success with its sister buildings – Towne Square Place I, Towne Square Place II and Headquarters Place – which are situated directly south of the new development site, 121 Commerce Square will feature two, 3-story office buildings totaling 200,000 square feet of space along Belleview Drive. The first of the two buildings, being called Terra, will feature 21 pre-finished, move-in ready suites ranging in size from 3,000 to 7,000 square feet and include conference rooms and an indoor-outdoor café with prepared meals catered daily. The buildings will be separated by a landscaped plaza area with a 150-foot water feature. The two-building project is valued at $36 million and the first building (Terra) is projected to deliver in December 2023. 

Rendering of Primera's 121 Commerce Square Project (Source: DMN)

Dallas-based real estate developer Cawley Partners plans to break ground before the end of the year on the second phase of The Parkwood, which will feature 120,000 square feet of office space along Parkwood Drive, just south of Windhaven Parkway.  Cawley has already signed its first lease in the building with SFMG Wealth Advisors agreeing to occupy 22,000 square feet to serve as the wealth management firm’s new headquarters.  The second building will connect to the first building through an open courtyard where a pickleball court will be built, which was a special request of SFMG that will appeal to its young, competitive workforce. The building and the courtyard are expected to be completed in mid-2024. Cawley is currently quoting a rental rate of $36.00/NNN for space in the building. 

Rendering of Phase II for Cawley Partners' The Parkwood (Source: CoStar)

Plano-based real estate developer Caddo Holdings debuted its new office building, Caddo Office Reimagined, at 4324 Mapleshade Lane in south Plano on November 1. The 2-story, 40,000 square foot building is situated along the north side of State Highway 190 (Bush Turnpike) and south side of Mapleshade Lane west of Coit Road. The building will offer private executive suites for office memberships as well as co-working style social memberships that include reservation-only meeting spaces and daily office rentals. Private office memberships will start at $549 per month and include amenities such as free surface parking, conference rooms, Internet access, WiFi-enabled areas, printers, Keurig coffee machine and refrigerators.

Caddo Office Reimagined at 4324 Mapleshade Lane (Source: CoStar)

Dallas-based investment firm Coltala Holdings, which focuses on acquiring majority ownership stakes in stable U.S. businesses in the healthcare, manufacturing and business services industries, has closed on its investment in Pond Robinson & Associates, a Frisco-based nationwide commercial due diligence firm providing engineering and architectural services for institutional property owners acquiring or developing commercial real estate across the country.  Pond Robinson currently has a 42-person headcount with additional office locations in Atlanta, Tampa and Houston.

San Antonio-based civil engineering firm Pape-Dawson Engineers, which acquired Plano-based civil engineering firm Dowdey, Anderson & Associates in 2021, has executed a new lease agreement for 36,471 square feet at The Tennyson (6105 Tennyson Parkway) that will allow the combined company to merge into a single office location in Plano in the 1st Quarter 2023. Pape-Dawson currently occupies 11,913 square feet of space at 5810 Tennyson Parkway just across the Dallas North Tollway from its new building. The combined company is the number one civil engineering firm in terms of the number of single-family residential lots platted and in total acres platted in the State of Texas. The Tennyson is currently 63% leased and quoting a rental rate of $31.00/NNN.

The Tennyson at 6105 Tennyson Parkway (Source: CoStar)

Private real estate investor Bhakta Bharat has placed 5500 W. Plano Parkway on the market for sale. The 2-story, 37,716 square foot Class “B” office building was built in 1999 and is currently 100% vacant. The property was most recently occupied by healthcare firm Preferred Care, which is owned by the property seller. The seller is asking $6,250,000 or $165.71 per square foot, which provides a significant discount to replacement cost. Given current market conditions, limited building amenities and single-tenant floorplates, this property is positioned for an owner-occupant purchaser as over against an investor.

5500 W. Plano Parkway (Source: CoStar)

Construction has officially topped out on the 19th floor of Granite Park’s Class “AA” Granite Park Six situated along the south side of the State Highway 121 service road at Granite Parkway. Granite Properties is partnering with Raleigh-based real estate investment trust Highwoods Properties on the project. In July, Highwoods agreed to contribute $130 million on the venture with Granite to develop both Granite Park Six and the 23Springs office high-rise in the Uptown market. Granite Park Six is now scheduled to deliver in July 2023 and will consist of a 19-story, 422,109 square foot tower, 9,000 square foot WiFi-enabled amenity deck on the 6th floor featuring outdoor seating, yoga lawn, grill and covered area, customer lounge with coffee and wine bar, golf simulator, three conference rooms, 150-seat theater-style lecture hall, catering and event space, and a fitness center with curated group classes. Granite Properties is currently marketing space at $42.00/NNN ($16.00/SF) and has, thus far, leased two floors totaling 52,390 square feet to an existing Granite Park tenant, commercial finance firm Stonebriar Commercial Finance.

Rendering of Granite Properties' Granite Park Six (Source: CoStar)

Missouri-based Larson Capital Management has closed on its acquisition of The Plaza at Legacy (5465 Legacy Drive) from New York-based MetLife. The 7-story, 223,389 square foot office building, which is situated along the north side of Legacy Drive just west of Hedgcoxe Road, is currently 82% leased with a 5.0-year weighted average lease term remaining and is anchored by LoanDepot (61,149 SF), Broadcom (50,543 SF) and Randstad (31,884 SF).  Larson Capital reportedly purchased the asset for $62.5 million or $280/SF. MetLife acquired the building in 2014 for $58 million or $260/SF. Larson Capital also purchased the adjacent office building – 5445 Legacy Drive – in May 2022 for $58 million or $326/SF. 

The Plaza at Legacy (Source: CoStar)

I specialize in representing office tenants in the North Dallas/Plano/Frisco market. Please let me know if I can be of service with your real estate needs (relocation search, expansion, lease renewal negotiations, building/condo purchase, sublease, portfolio management).

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Tor Erickson  |  Senior Vice President

Cresa
One Cowboys Way, Suite 350
Frisco, TX 75034

469.323.5395
terickson@cresa.com
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