Office Migration Puts Addison Back On The Redevelopment Map
Addison officials rolled out an economic development plan last year when they noticed redevelopment activity picking up in their city.
Addison's blueprint includes plans for a 29-acre mixed-use development south of Addison Circle Park, near Arapaho Road and Quorum Drive.
"Within the next few weeks or so, we hope to put a request for proposals out to hire a real estate company that will help us market those sites for potential development," Addison Director of Economic Development and Tourism Orlando Campos said.
Addison's vision for the Arapaho-Quorum area is a mixed-use development filled with residential and office product.
After 67 years as an incorporated city, Addison is ready for a comeback even though it never really left the collective consciousness of brokers and tenants who prefer its centralized location and business-friendly vibe.
"We are continuing to reinvent ourselves," Campos said. "We are a city that is nearly built out, so our focus now is on identifying areas that are ripe for redevelopment."
The community faces no shortage of potential value-add projects with 60% of Addison's office stock, or roughly 15.6M SF, built in the 1980s. Another 18.1% came out of the ground between 1990 and 2000, according to CoStar.
While these older assets are dated enough to create strong value-add plays, they require much less investment than office stock from the 1950s, '60s and '70s, CoStar Director of Market Analytics Paul Hendershot said.
"They have a tremendous opportunity for developers to go in and breathe new life into some of these buildings with good bones and great locations ... and reinvent that area," Hendershot said.
The owner and operator intends to add a 15K SF park to the center, establish 50K SF of creative office space and ensure the exteriors are improved to give the mixed-use development a fresh look. The site sits at the corner of Beltline Road and Montford.
Office is one of the asset classes most in demand for value-add investors in Addison.
Seventeen Addison office buildings larger than 100K SF went through renovations this past decade, Hendershot said. That is 20% of Addison's entire office stock.
One such property is the 166K SF Bent Tree Tower II office building bordering the Tollway.
Colliers International, which has brokered the sale of several Addison office assets recently, helped Regent Properties sell Bent Tree Tower II to a partnership created by Hudson Peters Commercial. Before it sold the property, Regent Properties invested $4.7M in building improvements.
Colliers International Executive Vice President Creighton Stark credits the sale and others in Addison to skyrocketing rental prices in other Tollway office markets, mainly Plano and Frisco and those south of I-635.
As DFW became one of the hottest office markets in the country for investors and tenants, those markets simply became too expensive for tenants who moved there several years ago, Stark said.
"Because [office tenants] signed their leases in those two pockets about seven to 10 years ago, they are currently facing some major sticker shock because their rental rates have gone up 50% to 100% from when they originally signed," Stark said.
As a result, investors are keen on Addison, where they can redevelop older 1980s and 1990s office, multifamily and retail stock, while keeping prices below competing submarkets.
The average office rent in Addition is $26.51 per SF, compared to $23.10 per SF in 2014, according to CoStar data.
Based on current growth projections, CoStar estimates Addison's average office rent will reach $29.02 per SF by 2024. But even if Addison rents shoot up to $30 per SF, they will remain competitive along the Tollway.
Competing West Plano already has office products leasing for $33.87 per SF on average, while Frisco office rents average $32.95 per SF.
Farther south on the Tollway, Preston Center's office market already demands an average rent of $39.70 per SF, while Uptown rents average $42.93, CoStar data shows.
With rents like these, Addison has plenty of room to improve its price point without losing the affordability factor.
"They have quite a bit of runway," Hendershot said of investors. "You have a delta of almost $6 or $8 overall, and then if you look at Class-B [office] in Frisco [compared] to Addison, it's almost $8 [delta], so I think there is a lot of room for growth."
Addison EDC and the city have several other redevelopment plays on their radar.
A former Sam’s Wholesale Club that shuttered its doors a few years ago is now part of a redevelopment play on Beltline and Midway Road, Campos said.
Known as the Addison Grove project, the site will eventually house 117 townhomes, 330 apartments and another 20K SF of retail space, Campos told Bisnow.
The Inwood Corridor in Addison also is ready for a retail rebound. Years ago, the corridor became known as the liquor store alley for dry cities in North Dallas.
But with liquor laws updated and more municipalities allowing liquor sales today, the Inwood Corridor is primed for redevelopment.
"We have lost that luster [there], and so we are looking at redeveloping that area with more retail as well as office space," Campos said.
The investors who are making Addison competitive again are those who understand how to attach value-add projects to existing assets near the Tollway.
"The landlords have done the responsible thing of going in and improving properties to a level that tenants are used to having in the Legacy [Business Park area] north of George Bush, and south of the [I-635] pockets," Stark said.