Occupancy Surge At The High Five
Construction around the High Five began in 2002, but the area continues to cause headaches. Owners and developers have avoided the area since the LBJ Expressway project broke ground, and tenant reps instructed their clients to do the same. Now that construction has completed, we talked with owners and landlord reps to see how they fared.
Hartman Income REIT entered the market around the High Five in 2004 when it acquired North Central Plaza 1. Hartman now owns and operates four office properties within the corridor and about a dozen other commercial properties close by.
The $2.7B project to add toll express lanes from Luna Road to Preston Road broke ground in 2011 with plans to complete in five years.
"By 2013, we already started to see a downturn in occupancy because of construction along LBJ," Hartman CIO David Wheeler tell us. Tenants were moving out of the area and staying far away from the construction on LBJ's TEXpress Lanes.
But Younger Partners' co-founder Moody Younger (above) thinks the perception of trouble outweighed reality.
"Brokers were making tenants nervous and owners got scared about investing capital into these buildings," Moody tells us.
Younger Partners' co-founder Kathy Permenter (above) has leased Park Central 3 since 2002 with natural ebbs and flows in occupancy. As for higher vacancy during LBJ's construction—well, it coincided with a recession.
Access to Central and LBJ during the construction remained unobstructed and construction finished early (yes, it's possible).
As for Hartman's current status around the High Five, it's pleased. Occupancy recently spiked by 9%, rents are up $1 a foot and many tenants signed seven- or 10-year leases. David remains optimistic that the offices in the area will rebound more quickly than when construction along Central broke ground in the '90s.
"I'm confident that for the foreseeable future, this area will be a healthy and vibrant submarket with tremendous value for tenants—and some of the best access in DFW," David tells us.
Hartman clearly isn't an exception. Dozens of buildings in the area have changed hands within the last 18 months or so, and they're going like hotcakes. Both David and Younger Partners agree they'd snap up another building or leasing opportunity in the area in a second.
According to CoStar's office building database, vacancy rates around the LBJ have fallen only 1% since Q3 2013. But the real story can be seen in rental rates. Rents in the corridor moved from just above $16/SF during Q3 2013 to $21 a foot today.