Author: Younger Partners

Our December #YPSpotlight, Byron McCoy, is one of the nine partners at Younger Partners. He joined the company six years ago and focuses on third-party agency leasing and some sales transactions. Byron says what he enjoys most about his role is that every day, every transaction and every client is different. Getting a property to full occupancy is especially satisfying, too. He and his wife of 31 years, Deah, have three grown children – Kent, Caleb and Katherine – and welcomed their first grandchild this year, Brooks Byron.

Salesmanship has been in Byron’s blood since he was a boy: he was a paperboy for the Dallas Times Herald from the third grade until 11th grade. He was enterprising and came up with the idea to include payment envelopes with the newspapers asking for the subscription payments to be mailed in or pinned to the mailbox, The Herald took the idea citywide with the Dallas Morning News following suit. Named Paperboy of the Year twice, Byron did TV commercials for the Herald and used the money to finance his education at Baylor University.

By Younger Partners Research Director Steve Triolet

Rates are a lagging indicator, in other words, they often don’t react initially to changing market conditions. Still, over the past few quarters, DFW office asking rates have remained stubbornly high, especially in comparison to other large markets like San Francisco and New York City (which have both seen rates drop about 10% over the past three quarters). The level of distress for owners in those coastal markets is high, so their rates have reacted more quickly.

Diving into the details of what I’m seeing in DFW office rates:
*Lincoln Centre recently raised its asking rate across the business park by $2 to $32 (NNN). The catalyst appears to be the Huitt Zollars lease signing for 32,519 SF at Lincoln Centre III. Lincoln Centre is currently well leased with an occupancy rate near 90%.

On the flipside, some properties in Hall Office Park have seen some rate reductions for direct space. Property G4, for example, at 3011 Internet Blvd recently went from $23 (NNN) to $22 (NNN). The property’s occupancy is low; 82% of the property is available between a combination of direct and sublease space.

Roughly half of the submarkets recently saw a slight decrease in asking rates while the other half had slight increases, making the overall rates relatively flat.

To date, the biggest movement in rates has been for sublease space. While the typical discount between direct and sublease space remains near 15% (which is the historic norm), more than a quarter of all sublease space being marketed does not have a quoted asking rate. Still. among the individual subleases, discounts of around 50% have been quoted. Ashford at Centura Tower I is quoting $15 Plus E, while the direct space at that property was recently quoted at $30 Plus E.

In the most extreme case at Energy Plaza, there is a very large sublease for 570k SF that has over a 60% discount in comparison to direct space ($9.50 full service rate), but that sublease has only a year of term left and has been listed on the market for over three years with no leasing activity to show for it.

With most properties taking roughly two years between breaking ground and occupancy, the construction pipeline takes time to shift from changing market conditions.  Still, I think it is informative to see how the various property types have changed over the past few years, along with some data on the current under construction pipeline.

As you can see in the chart below, the industrial market seems almost unfazed by the current recession, with almost 30 million square feet of space currently under construction (note this does not include flex properties).  

Office and retail properties are show parallel trend lines of peaking in 2016 and trending downward since (The current office pipeline is 7.1 million square feet, while the retail pipeline is 3.3 million square feet).  

With recent announcements for the office sector though (Cawley is kicking off The Parkwood, a 120,000-square foot office building in Far North Dallas.  First United Mortgage Corp. will occupy about half of the property and 

Harwood announced Harwood 14 in Uptown.  Harwood 14 is a 27 story, 360,000-square foot office project.   Haynes and Boone will be the lead tenant and will occupy about 125,000 square feet).

Of the projects currently under way for office and retail, roughly half of the square footage has been pre-leased (54% and 52%, respectively), so the market is scheduled to have over 5 million square foot of new vacant office and retail space delivered over the next two years (3.6 million square feet for office and 1.7 million square feet for retail).

By Taylor Tompkins  – Data Reporter, Dallas Business Journal

May 31, 2020, 6:05pm EDT

Managing partners Kathy Permenter and Moody Younger have been spending a lot of time on the phone since the beginning of the pandemic.

Once closures began, the pair in charge of Younger Partners began checking on employees and clients. Phone calls ran the gamut — checking on families, comparing notes on what others were hearing in the market and understanding the long-lasting impacts of the shut downs caused by the outbreak.

“Everything that we were working on all the sudden changed,” Younger said.

Uncertainty around construction and moving offices caused a number of the boutique commercial real estate firm’s deals to stall.

“We had several deals that I think had this not occurred, (we) would have made different choices and would have proceeded in different ways,” Permenter said. “I think deals that were in the signature stage — some of those some of those didn’t even go through.”

Younger Partners weren’t the only ones seeing a hesitation to buy or lease space. Dallas-Fort Worth experienced negative net office absorption for the first time in more than two years during the first quarter of 2020.

By the end of April, though, Younger Partners was starting to see movement again in the market.

“Life is coming back into (the market) a little bit,” Younger said in late April. “People are engaging more and over the next month you’ll definitely see people start to stick their toe in the water.”

Industrial transactions for Younger Partners remained steady through the bulk of the COVID-19 interruption. A slowdown in its land business was caused by planning and zoning delays on the local government level, Younger said.

The company also has hopes that the outbreak will create high demand for its leasing services throughout the summer.

“There have been multiple office buildings that haven’t performed as the investors originally anticipated,” Younger said. “Now with what’s happened with COVID-19, they’ve just really been put on hold, and so they still haven’t performed. And so, I think, they’re looking for companies that are creative and energetic to take over.”

The firm expects most of revenue that it had anticipated in the spring and early summer months will be pushed back to the third quarter.

“Especially in Dallas, (real estate firms) really kind of design yourself around recessions so that you can make it through them,” Younger said. “This is a different cause, but it’s really a recession. In our business, revenue isn’t consistent, and it bumps along so you have to keep more capital on hand just for those times when there is a recession and you have to manage a company with limited revenue.”

This story is part of a national series from the Business Journals’ 44 newsrooms across the country. Click here to read all 247 stories. The Younger Partners article can be seen here.