Commercial Real Estate Report: Where industry experts say we are headed

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It’s hard to imagine a time when tall buildings, busy restaurants and bustling stores weren’t lining both sides of the Dallas North Tollway through Addison and along the streets in Town’s business districts. Today’s drivers are accustomed to seeing new and familiar brands represented up, down and throughout the Corridor. And although the recent recession has affected the local commercial real estate market, Addison’s industry experts agree that the area is thriving.

But that wasn’t always the case.

When the Dryden Company started developing in Addison, the Town had lots of potential in its 4.4 square miles, but it also had plenty of room to grow, according to Suzanna Dryden Jenson, who has been working in her family’s company for about 30 years.

“When my father got started in the development sector, Addison was just getting going. The streets around Westgrove and Sunbelt were empty. He saw a lot of potential in Addison and fortunately he was right,” she says.

Its proximity to Dallas has long been an advantage for the Town of Addison, but the addition of the Dallas North Tollway in the late 1970s and early 1980s brought with it rapid expansion. Today, Addison’s commercial real estate market has more than 9 million square feet of office, technology and retail space. Mary Kay, Glazer’s Family of Companies and Hilton International are just a few of the many world-famous brands doing business here.

“We have 12 million square feet of office space in Addison available for the private sector, a little more office space than is in the central business district of Fort Worth,” says Orlando Campos, economic development director for the Town of Addison.

He continues, “We are trying to be as business-friendly as possible to help support local businesses.”

That business-friendly mission, combined with desirable location and demographics, has helped Addison hold steady in a challenging market for office spaces and retail over the past few years.

Industry experts say that Addison is consistently filling existing office space. In June, Certificates of Occupancy were issued for more than 30,000 square feet of commercial space and typically, more space than that is filled each month.

J.J. Leonard, Senior Vice President in Office Brokerage Services at CB Richard Ellis, sees this on a daily basis. “I think that the market has improved.  From a statistical standpoint, the numbers show that the office market has improved significantly over the past year.   Businesses are growing and have been more inclined to make long-term real estate decisions.  At the Colonnade, we are currently over 90 percent leased and the activity at the property over the past year – and really the past 3 years – has been phenomenal.”
According to George Roddy, owner of Roddy Information Service and the Roddy Report, Addison has been consistent in the type of business it attracts and most of its businesses are in the service industries.

Roddy describes the office market in Addison as neutral, noting that occupancy levels are “slowly but surely” increasing while rents stay the same.

“Similar to other office markets in the Dallas/Fort Worth Metroplex, rents have remained steady in Addison proper. Average rents are about $20 per square foot, close to where it was two or three years ago,” he says.
The retail market in Addison has seen an increase in occupancy over the last couple of years and Alan Shor, co-founder and president of The Retail Connection, has a front-row seat to watch the evolution. The Retail Connection’s recent acquisition of the Village on the Parkway, a premiere property at the intersection of Belt Line and the Dallas North Tollway, is a key player in bringing new business the area.

“We are wrapping up our lease with the theater and with Whole Foods, we anticipate construction soon. Those will be the major bookends of the project. Leasing is going well. There has been very strong leasing demand with a nice lineup of upscale retail and restaurateurs, along with major additions to the architecture part of the development,” he says.

Shor also says that the Town’s strong business environment is a direct result of its supportive pro business environment.

“Addison is one of the few sub markets where you don’t see the typical challenges that you might see in other parts of the metroplex. You have such ease of getting in and getting out. The one challenge is just not enough quality retail real estate, because density remains high and it’s such an attractive place to do business.”

Retail Realty’s CEO Dan Avnery agrees. An entrepreneur who started his business in 2009, he says that he’s “only known a bad market,” which helps him remain optimistic and innovate across all types of economic climates. But even in the “bad market,” Avnery and his agents have been busy, developing retail properties near Addison Road and along Preston Road, to name just two.

“I believe retail (development) is the most exciting industry,” he says. “It gives a feeling of accomplishment and creates jobs. It’s exciting to track retailers in expansion and it’s never boring.”

“Retail is going to be here in Addison,” he continued. “I have listings in Tarrant County and this submarket is stronger.”

Avnery credits the area’s demographics with its relative strength and survival in the economic downturn, especially in the retail sector. When there are residents to give business to stores and restaurants, it translates to a thriving market.
“This area has a higher income and a larger portion of residents have master’s degrees or above,” he says. ”The clientele here have disposable income.”

Businesses seem to come to Addison and stay there long-term and experts like Jeff Staubach, managing director for Jones Lang LaSalle, say that although there are challenges – there isn’t much activity in terms of new construction – there is much to be optimistic about.

“Rent has not pushed high enough to demand a new building,” he says. “The rates are stronger than they have been but to build, rates must be in the $27-$28 dollar a foot range and we’re not going to see that too soon. Rates just haven’t gotten there yet in Addison.”

But Staubach went on to say that Addison and the North Dallas Corridor is more than 80 percent occupied and some pockets are even higher. And he emphasizes that it has always been a strong market.

“You’ve got the Galleria in North Dallas and Wingspan Portfolio Advisors, a recent client, signed a 130,000-square-foot lease. There have been a handful of strong ones. Behringer Harvard is looking in Addison Circle.”

Leonard also acknowledges Addison and the North Dallas Corridor as always being a strong market. “From an office perspective, the Addison micro-market has always performed well and 2012 is no different.  For the most part, office tenants searching up and down the Tollway are drawn to the area’s abundance of high-quality office buildings with strong ownership, close proximity to countless restaurants and amenities, and central location.”

Campos says that as in other parts of the country, the economic recession has negatively affected Addison’s commercial real estate market. “We did experience a strong upswing in terms of vacancy, which was obviously a result of companies resetting, re-evaluating their strategic plans, and consolidating.”

But like Staubach, Campos remains optimistic amid challenges.

“Over the last year we have seen small amounts of absorption in the market, but I think we can do a whole lot better. When it’s all says and done, it’s about location. We establish incentives, but incentives aren’t the wherewithal. There are other factors that add to the bottom line. The advantage that we have is location.”

Location is a word that comes up again and again when talking to commercial real estate industry experts. With easy access from the Dallas North Tollway and the George Bush Turnpike, and proximity to Dallas, Plano and other nearby business districts, its advantages are clear.

“Some people think of us as a ‘bedroom community’, but we see ourselves as a ‘boardroom community’ in the Addison and North Dallas business district,” says Campos.

Addison offers a greater reach for companies and employees and also ancillary services that exist in the small but busy region.

“We have restaurants and more than 22 hotels, two of which are ranked as the top 10 largest in the Dallas area,” he says. “We’ve been working hard over the years developing a market that will sell itself and be appealing to companies and labor force that those companies will want to live in. We’re always trying to be innovative and develop relationships to get companies to stay.”

Another important facet of the community and its attractiveness is the existence of Addison airport, which Campos notes has evolved into the state’s busiest general aviation airport driven by the corporate flyer. “That is attractive for businesses where time is money,” he says.

“The tollway has always been a great amenity,” says Staubach. “It’s a good location with access from everywhere, and accessible to every kind of service, good neighborhoods, and it’s a great place for companies with clients in Frisco, Las Colinas and Dallas.

Suzanna Dryden Jensen’s family-owned leasing and property management firm, the Dryden Companies, owns primarily industrial spaces under 10,000 feet in the Addison area and caters mostly to local business owners.

“We have C-DM Networks, a roofing company, Keaton interior design and we got a new tenant recently, Automated Packaging Systems. We also have Technifax Corporation, Glaceau Industries and Promotional Packaging,” she says.

She says that the company’s Addison properties are equal to similar properties that it owns in towns like Allen, McKinney and Celina. “Addison has always been a bit stronger, but now it’s all about the same,” Dryden Jenson says. “It’s a very desirable location, convenient to the toll road, the George Bush Turnpike and 635, and has a reputation for being high quality and low crime.”

And, Dryden Jenson says that things are picking up. “We are seeing new companies starting and companies expanding, with fewer and fewer companies downsizing. We are optimistic.”

Local industry experts indicate that LEED Certified “green” construction is not currently a deciding factor for businesses considering Addison for their commercial real estate needs, but construction is evolving to accommodate the environment where it can.

“The commercial real estate market, both for new and existing projects, continues to look

toward energy-efficiency because it’s an important factor in occupancy and operational

costs over the long term. So while ‘green’ might not be the number one factor in a location decision, every business is certainly looking for green elements in terms of efficiency,” says Herb Weitzman, owner and chief executive of the Weitzman Group, which leases Addison Town Center among other properties.
Staubach says that Addison Circle II is “fairly green,” but the extra expense is a deterrent for some landlords.

“We’re seeing more of it,” he says. “But if the clients aren’t willing to pay the extra five-to-ten cents per foot, landlords can’t make it work. Owners can’t justify if clients can’t pay for it.”

While Shor hasn’t seen a deep penetration into environmentally conscious construction he believes it’s just a matter of time. “It may just be the time it takes to cycle through the construction phases. We are conscientious when it comes to protecting the environment and we work it in when we can. As far as how important it is to the Addison market, it’s hard to speak to. But where we can be, we will be.”

Mark Hull, a senior vice president with Henry S. Miller Brokerage, feels that “green” initiatives work best a la carte.

“Addison has always maintained high, but also fair, building standards and

other relevant resource preservation codes. In my opinion, the expense doesn’t justify most of the known benefits,” he says.

The future of Addison’s commercial real estate market’s ability to thrive depends on many different factors, some which are easier to control than others. Local commercial real estate professionals are doing their part to keep the momentum going.

Avnery says that Retail Realty uses innovative marketing techniques to attract new business to the area. In addition to the conventional “knocking on doors” approach, Avnery’s team turns to other types of marketing.

“We’ve used creative ways of marketing our spaces and it works,” he says. “It took a lot of trial and error to nail down the techniques. We market online, through different forums and specialized postings.”

Campos says that the Town of Addison is taking business development matters into its own hands with a comprehensive plan that includes a “grow your own” approach.

Addison’s City Council formalized an incentive policy to help close deals and ensure that the community is competitive for corporate relocations as well as local business expansions. The town’s aim is to ensure the success of its local businesses.  When a company establishes operations in Addison, it is provided the local resources to enable their continued success for many years.

Incentives include everything from fast-track permits and site selection assistance to grants, relocation help and incentives that provide support for capital investment in the community.

“We are growing our own, evaluating several entrepreneurial programs to help create new companies here in Addison,” says Campos. “These types of companies that will grow, could translate to corporate headquarters in Addison.”

Those buildings, businesses and retail operations that we see when we travel through Addison aren’t going away any time soon and it is exciting and to know that there are systems and frameworks in place to ensure that commercial real estate – and the businesses that come with it – are growing in Addison for years to come.

“Addison ranks high as a commercial location, whether for retail or office users. The town offers the infrastructure and quality of life that retailers and companies respond to,” says Weitzman. “And as the overall economy improves, we’re seeing increased interest in the market, thanks to its key location, its accessibility and its demographics.”

-By Stephanie Durham Khattak

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