Cresa Connection: Tollway Corridor - April 2021

Please find April's edition of my monthly update on the North Dallas/Plano/Frisco office market detailing lease transactions recently signed, tenants searching for office space in the market and the latest office building news.

As we continue through 2021, if you have an office decision to make this year please contact me for help with your real estate needs.

Lease Transaction Comps

1. NetApp
Building: 6900 Dallas Parkway / Legacy Town Center II
Type: New Lease
Size: 8,426 SF
Term: 91 months
Free Rent: 7 months
Start Rate: $29.00/NNN
Bumps: $0.75
TI: $50.00/SF

2. Toyota Insurance Management Solutions
Building: 7600 Windrose Avenue / Legacy West
Type: New Lease
Size: 6,150 SF
Term: 66 months
Free Rent: 6 months
Start Rate: $32.00/NNN
Bumps: 2.50%
TI: $30.00/SF

Market News
Amazon intends to return to office life after the pandemic is brought to heel, a decision that bucks a new trend toward more flexible work arrangements that is particularly prevalent among its peers in the technology sector. The global retail and technology company said it intends to shift away from a work-from-home model over the next few months and start sending large portions of its white-collar workforce back to the office for the first time since the pandemic begin in March 2020.

Over the past 12 months, only 10% of Amazon’s thousands of workers have reported to the office on a regular basis. However, Amazon said that in-person interactions between co-workers are a critical part of its success. “Our plan is to return to an office-centric culture as our baseline. We believe it enables us to invent, collaborate and learn together most effectively,” wrote an Amazon executive. The company’s plan runs counter to that of many high-profile tech companies, including Google, Facebook, Twitter and Salesforce, which have announced that they will continue to rely on remote work after the health crisis passes. Some have abandoned the office entirely, while others will use a flexible office model that allows employees to work remotely or from an office when they so choose. Amazon’s decision to return to the office mirrors that of another tech giant from its home base in the Puget Sound – Microsoft, which began reopening its offices in Redmond, Washington, in late March shortly after releasing a study that determined that remote work was taking a heavy toll on company cohesiveness and morale.

With demand for DFW office space on the downward trend and home purchases booming, Dallas-based developer Rosewood Property Company (founded by American heiress and hotelier Caroline Rose Hunt) has decided to revamp its 156-acre Heritage Creekside project on Bush Turnpike between Alma Road and Custer Road, which has been under construction since 2014. Rosewood has owned the Heritage Creekside land for over 50 years. Originally planned as a $900 million mixed-use development, the property was zoned to allow for everything from office towers to single-family homes. Thus far, Rosewood has built single-family homes, apartments and retail space and plans to scale back office and add additional single-family housing units. Office uses will now move from a primary to secondary use in order to meet current demand. Office towers, which were previously authorized to allow for up to 15 stories, have been revised to top out at 6 stories. The development shift will add room for 32 additional single-family homes. Builders Cambridge Homes and CB Jeni have built high-density homes in the Heritage Creekside project with prices starting at $350,000.

Denver-based cybersecurity firm Optiv Security has placed its 14,341 square foot, fully-furnished office space at Hall Park (3201 Dallas Parkway) in Frisco on the market for sublease. Optiv opened its Frisco office less than two years ago. The office features a state-of-the-art Advanced Fusion Center, an upgrade to the outdated security operations center model, 51 workstations, 15 private offices and 5 conference rooms. Optiv’s lease term runs through November 2027 and the company is quoting $27.50/SF, NNN for their space.

Dallas-based developer Primera will be relocating its headquarters from its longtime downtown Dallas location along Ross Avenue to its newest office building – Towne Square Place II – upon delivery later this year. “Collin County is where the commercial real estate actions is and, as a developer, we want to be close to our tenants and commercial development opportunities,” said Primera founder and president Ralph Heins. Towne Square Place II will be located near the southwest corner of State Highway 121 and Preston Road and is scheduled to deliver in November.

The 392,201 square foot International Plaza I has been placed on the market for sale at $145 million or $370 per square foot, which translates to a low-6% capitalization rate or 12% cash-on-cash return. The replacement cost for a building of this product type in this submarket is $450 per square foot. The property sits within a three-building office campus just north of Spring Valley Road along the west side of the Dallas North Tollway and is 100% leased to the global headquarters for Tenet Healthcare (NYSE: THC) with a NNN lease in place through February 2036 (14.5 years remaining) with 2.25% annual rent escalations and no termination or contraction options. In addition to its TI allowance, Tenet invested $75 per square foot of their own capital into the build-out of their headquarters. The campus recently underwent a $26 million renovation project to bring new amenities – fitness center with locker rooms and towel service, café and bar with indoor and outdoor seating, conference centers, full-floor food hall, tenant lounges and Lake House.

Plano-based Pickup, an on-demand delivery service in 75 cities that works with retailers, has received $15 million in a Series B round of venture capital funding to expand into additional markets. Founder and CEO Brenda Stoner said its future expansion will also require more corporate staff across the business in sales and marketing, technology, operations, human resources and accounting. Stoner plans to double Pickup’s corporate staff of 100, most of them locally based, with some jobs operating remotely. Pickup was founded five years ago as a consumer app-based delivery service and has evolved its business by helping retailers such as Big Lots, buybuyBaby and At Home deliver big and heavy items to its customers. Demand for online shopping during the pandemic doubled Pickup’s revenue in 2020 and has continued to accelerate this year. Pickup operates through thousands of independent contractors – called “Good Guys” – who drive pickups and can deliver and assemble big and heavy goods. Many of its contractors are first responders. Pickup currently has 30 national contracts, including Plano-based At Home, which has been opening new stores nationwide.

Toyota Financial Services, the auto finance arm for Toyota in the U.S., is consolidating its customer service operations, affecting 1,100 workers who will be given an opportunity to relocate to offices in Plano or two other cities. The reorganization will consolidate the company’s customer service footprint from six locations down to three, including Chandler, Arizona (West Coast), Plano (Central), and Alpharetta, Georgia (East Coast). The move will take effect in 2022. Toyota Financial Services, which employs 3,300 workers, reported assets of $126 billion and revenues of $12.96 billion in fiscal 2020.

Frisco’s Star Business Park, a project of Dallas Cowboys owner Jerry Jones’ Blue Star Land and Lincoln Property Company, has filed plans to construct three additional warehouse buildings totaling 350,000 square feet. The three-year old, 200-acre industrial project near Preston Road and U.S. Highway 380 currently includes tenants such as Amazon, Magnus Chemical and international technology firm GEA Group. California-based Wiley X, manufacturer of sunglasses, eyeglasses and apparel, received approval from the Frisco City Council on $370,000 in economic incentives to relocate its operations to Star Business Park.

Dallas-based developer Cawley Partners announced its acquisition of a key office development site along the Dallas North Tollway in Frisco. The development will include two, 12-story towers situated along the east side of the Dallas North Tollway north of Warren Parkway, across the highway from The Star and Frisco Station. Named “Tate + Toll”, the proposed office project will comprise 600,000 square feet of space in two phases and feature a fitness center, conference center, rooftop lounge and on-site food service. Cawley is currently quoting lease rates of $38.00-$40.00/SF, NNN ($15.00/SF). Tate + Toll is currently being pitched to out-of-state companies looking to relocate to North Texas, who will have the opportunity to shift the building design to best fit their needs while the project still sits in the planning phase. Across the highway, several other office buildings are in the proposed stage, including an 11-story office tower at The Star and a 20-story office tower at Hall Park. Even though Cawley Partners is bullish on the future of the North Texas region, the developer does not plan to start construction on Tate + Toll until the property has secured at least 50% pre-leasing.

Construction has reached the halfway mark on the PGA of America’s new headquarters in Frisco. The four-story, 106,622 square foot office project is part of the PGA mixed-use development just south of U.S. Highway 380. Along with the office building, the 660-acre project will include two championship golf courses, a 500-room Omni PGA Frisco Resort and a golf entertainment district. The headquarters building, which will deliver early next year, will house 150 PGA employees and have a top-floor conference room and an outdoor terrace overlooking the golf course. The headquarters will include golf education space and indoor training facilities with a chipping area, putting green, golf simulators and a driving range.

Dallas-based developer Heady Investments currently reports to have 800,000 square feet of prospects considering their newest delivery – Headquarters II, which is a 14-story, 240,000 square foot office tower located at the northeast corner of the Dallas North Tollway and Headquarters Drive. Many of those prospects are still trying to determine their office layout (i.e. remote versus in-office headcount, private office versus bullpen workstation configuration). Headquarters II is the city of Plano's only 100% speculative building fronting the Dallas North Tollway to be built over the last three years. Heady Investments sold the hard corner pad site of Headquarters Drive and the Dallas North Tollway to a hotel developer, which will be restricted to constructing only a 6-story hotel. With Headquarters II featuring a 7-level "podium-style" parking garage with 7 floors of office space over the garage, the office space will maintain unobstructed views to the west. Given the crushing blow delivered by the pandemic to the lodging industry over the last 12 months, it is unlikely that this site will see a hotel project in the near term.

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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).

Learn why Cresa only represents tenants/occupiers exclusively.

Tor Erickson | Senior Vice President

Cresa
5005 Lyndon B. Johnson Freeway, Suite 800
Dallas, TX 75244

469.323.5395
terickson@cresa.com
cresa.com/dallas