Uptown To Remain Dallas' Ivory Tower
Uptown has ascended to the national and international level of investor attention and is expected to remain the holy grail of Dallas proper submarkets, according to experts.
“It seems like we’ve been talking about Uptown for a really long time, and the story has not necessarily changed. It’s been an emerging market, a maturing market, for a long time with a lot of positive trends of live-work-play, amenity-rich, walkable environment that everybody seems to want to be in the middle of. It seems like as this cycle is starting to peak that area has really kind of arrived in a way. It’s mature,” JLL Executive Vice President Brooke Armstrong said.
Land availability for new builds in Uptown is scarce, and the market is brutally competitive, just the right clime for institutional investors. Uptown is quickly becoming one of the few markets in Dallas that is no longer a local game (think KPMG Plaza's sale to Asian investors). Costs of entry into the market are such that smaller players are all but precluded. Welcome to Dallas’ Ivory Tower.
For example, 2000 McKinney Tower registered one of the highest sale prices for an office building ever recorded in Dallas at over $500/SF. Compare that to the 2017 sale of the former Encana Oil & Gas building in Legacy Business Park, which sold for just over $386/SF, according to the Dallas Morning News. Uptown is in a different pricing league than most of the rest of the metro.
"The most attractive markets have constraints on development land, including Uptown. We see that in Legacy. We are going to see that in the Arts District here, and increasingly I think there are barriers to entry for selected areas of Dallas ... there is just not that much developable land in the areas that I've cited," HALL Group President Don Braun said.
Armstrong said that Uptown's story has remained mostly the same for a long time. If anything has changed about Uptown’s perception during this cycle, in her opinion, it is that some tenants who got in at the top of the cycle see the area as excessively expensive as they feel the burden of 30% rental rate increases in some cases.
As Uptown gets more and more expensive, the surrounding areas — Knox Street, Design District, Main Street District, etc. — are going to transform and receive the spillover demand.
CBRE Senior Vice President Jack Gosnell predicts Knox Street has enormous potential to become a soft-goods shopping bastion as Uptown continues to struggle to find room for meaningful contiguous retail developments, and Armstrong said she has seen office tenants look to older parts of the Arts District and some of the creative space in the Design District as they run from rising rents in Uptown. Gosnell said eventually, if Uptown wants to up its retail game, it will most likely need to reconsider the use of its ground-floor space.
All in all, for the time being, and even after, Uptown’s elevated position appears to be safe and sound.
Want to know more about what to expect in Uptown and Turtle Creek? Check out Bisnow’s Future of Uptown & Turtle Creek event March 7.