Texas is notorious for its business friendly climate, which includes no state income tax, a low cost of living, and ample workforce. It is also home base for 52 Fortune 500 companies, with $1.6 trillion in combined 2013 revenues. These attributes should continue to attract companies and capital from more regulated economies that hinder business growth – this is further indicated by the projection of 1.08 million new jobs to be added by the four major Texas markets in 2015-2019 based on estimates from Moody’s Analytics.
Markets within the state are seeing employee recruitment and retention as a top priority for businesses seeking office space. Subsequently, there is high demand for healthy, quality workplaces that are easily accessible and have walkability, fitness opportunities and healthy meal options. Densification of the workplace is also becoming a predominant theme as employers are placing more importance on workplace strategy given rising costs of real estate and labor. Flexible hours and working offsite allow employers to maximize their office space utilization as they seek buildings equipped with larger floor plates, ample parking and adequate power supply. This in turn allows the office space of today to enhance company culture and foster more collaboration.
Each of the office markets within Texas has experienced a significant amount of post-recession relocation and expansion activity, which has subsequently benefited net absorption and has led to steadily declining vacancy. Given the favorable business environment throughout the state and recent announcements for additional relocations and expansions in the works, Texas should continue to fare well in terms of office growth.
In Austin, technology has driven corporate movement with Apple’s $300 million corporate campus as one of the largest and high profile of these expansions. Amazon will also add to the area’s tech scene with its planned move to Domain 7 later this year. The 2015 absorption forecast for Austin is 1.6 million sq. ft., the highest amount for the market since 2006.
Toyota’s future relocation to Plano will be a boon to the Dallas/Fort Worth market, with Liberty Mutual following suit after their April announcement to bring 5,000 jobs to Plano. Dallas/Fort Worth is slated for continued positive absorption and reduced vacancy despite an anticipated rise in annual new office building completions for 2015.
Energy firms such as ExxonMobil and BHP Billiton are expected to take occupancy in the Houston market throughout 2015 and 2016 despite the recent drop in oil prices. The 2015 Houston completion rate is forecast to increase by more than 60 percent compared to 2014, causing a short-term rise in vacancy.
In San Antonio, the recent USAA expansion and significant corporate build-to-suits have buoyed absorption, leading to 2014 having the highest net absorption since 2007 in the metro area. The outlook for San Antonio shows continued growth for the office sector, in tandem with 2.2 percent annual office employment growth over the next six years.
Contributing the markets overview is Lauren Paris, CBRE Senior Research Analyst. The data included was compiled through CBRE Econometric Advisors (CBRE EA).
Austin is on a trajectory to grow to a world-class city as lower real estate prices, a more favorable regulatory environment for growing businesses (lower taxes, etc.), quality of life and a highly-educated workforce drive continued expansions in Austin. Cost and supply of labor, in conjunction with quality of life and industry, have created an attractive environment for the tech industry and growth in the health care/medical tech industry could further fuel the expansion of Austin’s economy when the new Dell Seton Medical Center opens. The city has established itself as a place for “creatives” and millennials, bringing 150 new residents daily.
Inflation and unemployment are two factors business leaders should watch carefully. As labor supply and cost diminish, Austin may have a difficult time competing with less expensive markets.
Due to the unique geography and topography of Central Texas, businesses seeking large-scale office developments will likely need to look beyond Austin’s central core into surrounding suburbs, such as Cedar Park and Round Rock, or Southeast Austin to uncover the next phase of development in the Austin MSA. Transportation infrastructure has created “big city” traffic, leading some companies to split operations into different parts of the city so they can appeal to the entire Austin employee base.
The Austin update was co-written by Erin Morales, CBRE Senior Vice President and Russell Young, CBRE Senior Vice President.
Employers are drawn to Dallas/Fort Worth (DFW) because of its attractive and diverse labor market, quality standard of living and proximity to an international airport. As the largest civilian workforce in the state, DFW benefits from the “upward spiral” that begins with drawing talent from many universities in Texas and surrounding southern states. Another draw is incentives and cash grants offered by many DFW municipalities.
Less than 10 percent of businesses in North Texas are energy related, so there has been very little impact from the downturn in the energy market. Health care, financial services and insurance should remain especially strong in DFW for the foreseeable future, along with the draw that Toyota’s relocation will have on companies outside of the region.
Adequate parking is the most sought-after employee amenity in DFW and employers are also looking for affordable, quick, quality dining options in and around the building. Employers are looking for the entire employee experience, which includes diversified work space within the tenant space and also in the building; tenant lounges, conference facilities, fitness centers and great rooms are all important. Many large employers are preparing for the workplace of the future and for millennials, who are looking for a live, work, play environment, which is why many new developments have a town center design with groceries, restaurants and multifamily housing adjacent to office buildings. Wellness, walkability, and gathering spaces are all key words that come up during initial tours.
The greatest challenges in DFW stem from stressed infrastructure — the northern sprawl within DFW – and longer commutes. Dallas also currently lacks 100,000-square-foot or greater Class A options, but approximately five million square feet of new office developments are expected to open by mid-2016.
The Dallas/Fort Worth market review was co-written by Jeff Ellerman, CBRE Vice Chairman and Celeste Fowden, CBRE Senior Vice President.
Prior to 2015, the upstream and energy services sectors generated the most activity in Houston. However, with significantly reduced oil prices, the only energy companies expected to expand this year are those that make acquisitions, and midstream companies could grow by acquiring non-core assets from exploration and production companies that are looking to raise equity. Houston’s world-class medical center is expected to continue expanding into suburban markets following population growth.
After several years of heavy trading, the amount of real estate changing hands should slow down. Houston will likely not be as interesting to Institutional investors; however, foreign investors, primarily from Germany, Korea, China and the Middle East, have shown continued interest in stable, core assets.
In terms of tenant demand, the past few years have seen a flight toward quality. Efficiency trumps rent, so gains in efficiency make new buildings more affordable by looking at the cost per employee instead of the cost per square foot. In addition, tenants expect good security and high-quality service, and Houston employers will always be attracted to covered parking due to the weather.
The frequent announcements for new multi-billion dollar refineries, petrochemical expansions and liquefied natural gas projects could have a significant impact on retail, multifamily and residential, but not as much of an impact on office demand. These projects will benefit Houston’s overall economy by adding jobs, increasing the tax base, and purchasing goods and services from a multitude of places.
The Houston update was contributed by Lucian Bukowski, CBRE Executive Vice President.
Relocations and expansions are drawn to the San Antonio market by the area’s attractive cost of living, diversified and educated workforce, and opportunities to move into newer, more efficient product with an ample amenity base. San Antonio also benefits from being near the Eagle Ford Shale.
San Antonio is not heavily dependent on the price of oil and companies like Valero and NuStar, who have headquarters in San Antonio, should continue thriving. Health care, professional services and technology-related industries are all sectors that are expected to move ahead throughout 2015.
Clients in the market are currently seeking larger floor plates, upgraded finishes, walkability and buildings located in amenity-rich locations. Much like other Texas markets, wellness is a significant component to the current office requirement, making fitness centers, nearby outdoor trails and healthy dining options valuable to the tenant experience. Furthermore, WiFi, collaboration spaces and relaxed dress codes are all recurring trends that businesses are using to appeal to a younger workforce.
Lack of available quality product is driving developers to build more of these options, particularly in urban, mixed-use, amenity-rich projects.
CBRE’s Steve Thomas, First Vice President and Lindsey Tucker, First Vice President, co-authored the San Antonio update.