We not only want to attract new tenants; we also want to retain tenants—because retention means zero downtime and less capital investment in second-generation space and marketing efforts.
One trend that has now become a staple—and, quite frankly, a necessity for office leasing success—is the addition of retail to office product. A related, and equally important, trend involves creating walkability in the office environment.
In Dallas and across the country, employees are increasingly drawn to office environments that offer convenient retail amenities, such as on-site cafes, sundries stores, restaurants and even grocery stores. Meanwhile, walkability is becoming one of the most sought-after “amenities” among office tenants. Employees simply don’t want to have to drive every time they need or want to leave the office.
As retail accessibility and walkability become increasingly attractive, these features are more and more vital for differentiating an office property. In fact, any Dallas-area office property owner who is struggling to attract and retain tenants should seriously consider adding retail and taking whatever steps they can to maximize walkability. By making these projects a priority, the owner stands to make their building much more attractive to tenants and their employees.
When you look at Dallas’ most successful office buildings and parks, you will note there is a consistent insight among all of them: Walkability is capturing the majority of tenant demand. This trend was recently highlighted in “Foot Traffic Ahead: Ranking Walkable Urbanism in America’s Largest Metros,” a report from the Center for Real Estate and Urban Analysis (CREUA) at the George Washington University School of Business, in partnership with Cushman & Wakefield, Smart Growth America/LOCUS and Yardi Matrix. The report ranks the 30 largest metros in the United States, based on the percentage of office, retail and rental multifamily space in walkable urban places. The report found that in the 30 largest metros there are 761 “regionally significant” walkable urban places, or WalkUPs.
Thirty-eight WalkUPs are located in the Dallas-Fort Worth metro area, and our area ranks 12th in the nation in terms of population per WalkUP. The report found that 23 percent of DFW’s office square footage and 5 percent of retail space is located in WalkUPs, proof that there is plenty of room for improvement in terms of walkability. Luckily, things have started to improve—and fast. Although we are still primarily a car-centric metro, DFW has seen a recent explosion in new WalkUPs, including suburban town centers and greenfield developments, indicating pent-up demand for walkable urbanism.
Even in metros like DFW, which has relatively few WalkUPs, these popular areas are disproportionately contributing to the local economy. In the 2019 WalkUP Wake-Up Call analysis of DFW, the 38 WalkUPs comprised only 0.10 percent of the metro area’s land, but generated 12 percent of metropolitan GRP. Between 2010-2017, the net absorption market share of the WalkUPs in DFW was 2.6 times the 2010 basis market share—an indication that drivable suburban locations are gradually losing market share.
In DFW, the 38 ‘walkable urban places’ comprised only 0.10 percent of the metro area’s land, but generated 12 percent of metropolitan GRP.
Of course, since WalkUPs are more attractive to prospective tenants and employees, property owners in these areas also enjoy rent premiums compared to other areas of the Metroplex. The CREUA report found that DFW’s overall rent premium in WalkUPs for 2018 was an incredible 41 percent. Nationwide, the rent premium for walkable urbanism has increased by 19 percentage points during the course of the cycle beginning in 2010, indicating that the premium still may not have reached its peak.
We’re seeing this play out in the Dallas area, where Class A office buildings with immediate access and walkability to nearby retail consistently achieve among the highest rental rates. An example is Legacy/Frisco—a densely-populated and well-established office submarket. In many office parks throughout the submarket, retail has had a strong positive impact on office tenancy. Granite Properties, for example, created a distinct destination in their office park, called The Boardwalk, which helped differentiate their office buildings. Other areas that include a compelling, walkable mix of office and retail include The Shops at Legacy, Legacy West, Design District, CityLine and Shops at Park Lane.
As today’s office tenants continue to demand convenient retail and walkability, we expect to see more of a focus on WalkUPs throughout DFW. In the meantime, property owners should consider how retail might be incorporated into their buildings in order to attract and retain quality tenants. Right now, it’s one of the best ways to stay proactive to your current and future tenants’ needs.