To compare the Dallas and Houston office markets from a construction perspective, here is a Q&A with Brian Duplechin, vice president of the Dallas Office Division and Chris Heath, senior vice president of the Houston Office Division to gain insight on how business is operating in each location.
Q: What is the current state of the market for office construction?
Dallas | Duplechin: The office market is healthy in the DFW market, and with the influx of major corporations relocating to the DFW area, such as Toyota and Liberty Mutual in the Plano/Frisco Legacy areas north of Dallas, TD Ameritrade and Charles Schwab in the North Fort Worth area and Pegasus, Samsung and Kubota in Dallas, there is a need for office space in the DFW Metroplex. The relocation of these massive companies brings smaller, supporting businesses with them, adding an overall need for office space. The downtown Dallas area is seeing a large influx of mixed-use and revitalization projects located in the eastern part of downtown and Deep Ellum. There is also trending growth in Collin County in the Allen and McKinney areas. Overall, the Dallas/Fort Worth office market is doing very well and office vacancies are low.
Houston | Heath: The Houston office market has picked up over the past year. When oil prices dropped, office growth slowed. Now, we are seeing oil prices tick back up, and the need for space is growing with the improving oil industry. In general, new development has been curbed by the requirement to absorb a lot of vacant space. In contrast, Hines is currently developing in the central business district (CBD) to anticipate the absorption of the vacant space, so that when they finish their project they will be the only new Class A product in town. Other developers waiting to develop will be two years behind the need.
Q: What office building types and sites are you seeing developers interested in building?
Dallas | Duplechin: In Dallas proper, we are seeing a lot of tight sites with multi-story buildings utilizing below-grade parking and retail on the ground-level with office space above. There is a healthy amount of tilt-wall office with surface parking being built, but we see this prototype on developments with land to accommodate the design. A significant amount of cast-in-place structure is being developed in the dense downtown area and north Dallas areas. At Arch-Con, we are budgeting and proposing on all of these project types as well as medical office buildings, which are utilizing some of the same structures as office buildings. The tilt-wall structure is currently going to be an owner’s best value option.
Houston | Heath: In Houston’s history we have seen all types of office construction. Historically in the CBD, Greenway and the Galleria, projects have been cast-in-place or structural steel with glass/precast exterior, while the buildings outside of these areas are more typically tilt-wall and glass skin. With the advancements in tilt-wall, these buildings are looking more and more like their glass/precast “big brothers.” Currently we are not seeing any large office buildings in the more urban areas of the city, except in mixed-use developments. What we are seeing are smaller, single-tenant, tilt-wall buildings, but this is a big change from the past two years where there was very little to no office development.
Q: How do the prices compare in the Dallas and Houston markets?
Dallas | Duplechin: Prices in Dallas over the past few years have been about five to seven percent higher than in Houston’s market. In the past, Dallas has been less expensive to build than Houston, but in recent years, Dallas has caught up and passed Houston in cost of construction. Changes in the material and labor costs have attributed to the cost increases however, in my opinion, labor shortages have been the biggest contributor to the increases. Another factor that we have not yet seen is how and when the new tariffs will affect the market in the third and fourth quarter of this year. We know the costs will trend upwards, but how much is the question.
Houston | Heath: Houston received a slight reprieve from the strain of higher costs when oil was hit, and everyone put a pause on their developments in Houston. With that being said, Houston is roaring back in all sectors of construction, but not as quickly in office. Houston has a lot of empty office space that needs to be absorbed prior to real office development taking off again. The deal velocity in other markets will impact the labor and cost in Houston as it relates to the office deals that are occurring in the coming months. As this growth happens, we are currently seeing prices here in Houston slightly less than what they are in Dallas, but they do vary on building types. For example, buildings with more steel are higher because the current situation with the steel industry has driven our raw materials costs up as much as 25 percent from the beginning on the year. As a result, we have seen a 10 percent increase on cast iron sprinkler pipe and 15 percent on structural steel.
Q: How can you add value to a developer during the exploratory phase of a development?
Dallas | Duplechin: Being familiar with project sites around the metroplex and relying on our relationships with design professionals help us to provide valuable information about utilities and types of soils we encounter. We also are in constant contact with lenders, brokers and architects to talk about
ideas of what the current industry trends are. We understand how to get creative with office construction. Building processes, schedules and management software have been analyzed for better results. We familiarize ourselves with the options that are available, so we can make educated recommendations to developers. A unique type of building technique we’ve seen is a four-plus-two stack. It includes four lower levels of tilt-wall with two additional levels stacked on top. This is becoming a popular way to get more levels and keep the value of the traditional three to four story tilt-wall office design.
Houston | Heath: We assist the project team and provide the most value. We help guide our clients through the design process and ensure we are meeting the needs of the various submarkets, while providing the client with a detailed and accurate conceptual estimate during the exploratory phase. Our experience dealing with current cost trends allows us to quickly update the budget during the design phase. Our ability to provide quick budget adjustments maintains the design team’s vision while protecting the bottom dollar. Another value-add is our careful placement of each team member on projects. When we place someone on a project, we make sure their prior work aligns with the current project. We have some of the top talent in Houston with a variety of past experience and skill sets. Our goal is to put our team on projects where they will excel because they are experienced in that market or project type.
Q: What types of projects are you currently bidding and working on?
Dallas | Duplechin: I recently joined Arch-Con to focus solely on the office market, so we are just starting this division in Dallas. We just received a contract for an Ortho Suite finish out and have completed a self-storage project. We are budgeting office projects ranging from four to nine stories and getting close to some more opportunities. I look forward to when I can share the great news that we have landed our first large project.
Heath | Houston: We have ramped up with two office buildings under construction right now, and we are bidding on one to two office buildings a week. One project is the Roserock Camwest Phase I in Bryan/College Station, Texas. It is a four-story, 61,323-square-foot office building for Roserock Capital Group with Powers Brown Architecture as the architect. We are also currently under construction on the DHi Telecom Group office, a 40,996-square-foot, two-story office building for DHi Telecom Group off of Highway 288 Houston. This build-to-suit is designed by Jackson & Ryan Architects. Additionally, we were just awarded the Edifis Office Building, a three-story, conventional steel office building on I-10 and Detering. This is a project designed by Identity Architects. And, I must not forget our flagship Buffalo Heights project. This mixed-use project has a 36,000-square-foot, three-story office component. The office will include double-height floors, and the exterior walls will be full-height curtain wall.
Click here to see Arch-Con’s Office Division project portfolio.