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Dallas Business Journal - August 9, 2004
IN DEPTH: COMMERCIAL REAL ESTATE
From the August 6, 2004 print edition
Daniel C. Bartel
Staff Writer
RadioShack and Pier 1 Imports will leave behind nearly 1 million square feet of office space in downtown Fort Worth when they move to their new buildings.
Anticipating the worst, landlords like Walter Littlejohn have already locked in key tenants to new term leases to keep them from switching to other buildings.
"If anyone is waiting to see what's going to happen, then they're in trouble," said Littlejohn, who manages the 78-year-old Fort Worth Club Tower.
To try to cope with the changes, developers are putting much of the surplus space to residential use. The success of developments such as The Tower -- the former Bank One Tower now being converted into condominiums -- has shown that Fort Worth not only can support a residential market, but can accommodate one, said Andrew Taft, president of Downtown Fort Worth Inc.
"Residential is becoming a very viable option," he said.
Good thing, too. RadioShack and Pier 1 will leave behind about 876,000 square feet, or nearly 20%, of the central business district market, including the 660,000-square-foot Tandy Center, RadioShack's headquarters since the late 1970s, and three separate office buildings used by Pier 1 totaling 216,000 square feet.
Residential will capture about one third of that space. Developer David Porter's PNL Fort Worth L.P., purchased the Tandy Center in 2001 and is converting its 320,000-square-foot, 18-story north tower into condos -- expected to come on the market in mid to late 2006 -- at a cost of about $100 million.
Unless PNL can find a large anchor tenant for the center's 340,000-square-foot, 17-story south tower, it too will be converted for residential use, Porter said.
That leaves about 550,000 square feet remaining for office use, of which about 168,300 square feet at City Center Tower Two, 27,700 square feet in the Woolworth building and about 20,000 square feet at the Tindall Center will be vacated by Pier 1 this month as it begins its move to its new building. The move coincides with the expiration of the leases at those properties, said Tracy Gilmour, spokeswoman for Sundance Square Management, the property's landlord.
Other downtown buildings are going all-condo as well. Developers began converting Houston Place Lofts at 910 Houston St. to condominiums last May. And in late June, Fort Worth developer Amicus Interests L.L.C. purchased the 83-year-old Neil P. Anderson Cotton Co. building at 411 West 7th Street and plans to convert it into 60 to 70 luxury condominiums.
"With about half-a-million square feet sucked up by conversion and a stronger-than-expected office market, I think downtown Fort Worth is in for a soft landing," Porter said.
According to research from CB Richard Ellis, the second-quarter 2004 vacancy rate for Class A office space in the Fort Worth CBD was about 8% and rents averaged about $21 per square foot. The Fort Worth CBD has about 4.5 million square feet of Class A property.
If the lights remain out at Pier 1's vacated facilities and the Tandy Center's south tower remains as offices, the 550,000 square feet that floods the CBD would raise the vacancy rate to 13.5% and that could push rates down into the $18 per square foot range, the CB Richard Ellis research indicates.
But if rates drop, landlords of Class B or C buildings could struggle to hold on to tenants with leases expiring, said Jerry Alexander with NAI/Stoneleigh Huff Brous McDowell in Fort Worth. Tenants in Class B or C buildings could jump to Class A buildings at discounted prices.
"No one wants to make the first move to drop rates," he said.
Landlords agree that the shift could be troubling at first. But they are hopeful tenants with whom they've built solid relationships won't skip out for a better deal, Littlejohn said.
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