HVS Market Intelligence Report: Dallas – By Rod Clough

Spurred by several major capital investments, a resurging convention cycle, and a renewed uptown district, Dallas is experiencing its strongest economic cycle in recent history. Office space occupancy is up, surpassing 80%, with 1.1-million square feet absorbed during the first six months of 2007.[1] While new luxury office complexes are the focus of development in various pockets around the city, established complexes such as the massive Lincoln Centre at Interstate 635 and the Dallas North Tollway are reporting nearly 25% improvement in occupancy from 2002 to 2007. The availability of existing Class A space has proven fundamental to the city's resurgence during the last several years.

Recent, major overhauls have re-energized Dallas' retail centers. The city's retail anchor, Galleria Dallas, underwent a significant renovation under the new ownership of UBS after their purchase in late 2002. The massive project updated all interior facades, invigorating the 42-acre, 1.8-million-square-foot facility. Ongoing renovations at the Galleria's Westin will enclose its balconies and expand guestroom bathrooms to include new, stand-alone showers. These renovations, which will be complete by the spring of 2008, will solidify the Westin's position as the Galleria's market leader. The upscale NorthPark Center recently unveiled its $235-million upgrade and expansion, which included the opening of an 88,000-square-foot Barneys New York, among other new retailers. NorthPark, named the 'Most Popular Attraction' in the Dallas/Fort Worth Metroplex for seven consecutive years,[2] is expected to be ranked among the top five shopping centers in the U.S. in 2008. This corridor began to upscale its appeal with the opening of Mockingbird Station in 2001, and the opening of the Palomar, Kimpton's new luxury property on the Central Expressway, reflects the direction of development.

Downtown Dallas has been reborn. Visionaries such as Perot, Hunt, and Hamilton, among many other important Dallas developers, have spurred over $6 billion in new investments. Projects such as the Magnolia and Hamilton's Davis residential complex generated momentum in the mid- and late-90s, and major additional projects during the last several years show the force of change to be formidable. 7-Eleven recently relocated its corporate offices into downtown, occupying 300,000 square feet in One Arts Plaza. Comerica will soon relocate its headquarters from Detroit to the CBD, and Fireman's Fund Insurance Company recently leased an additional 130,000+ square feet for expanding operations. Downtown hotels are experiencing benefits accordingly. Room revenues for Dallas rose 6.8% through July 2007, when compared to the respective period in 2006, according to Smith Travel Research. Although citywide occupancy is holding steady near 63% through July, rates have risen by over $6, according to the same source.

Dallas has also become an ever more attractive mid-country convention destination, with roughly 40 major conventions in 2006 (up from 32 in 2005), and a delegate count over 730,000, as reported by the Dallas Convention and Visitors Bureau. The Bureau is now contributing increased activity to the convention market following a renewal of its vision and leadership, and 2008 and 2009 are expected to be the strongest years in recent memory, despite the fact that Dallas lacks a connected convention center-hotel property. After the opening of Fort Worth's Omni in the fall of 2008, Dallas will be the only major Texas city without a hotel connected to or adjacent to its convention center. The city council has, however, taken action by requesting a formal report addressing this deficiency by the end of 2007. Downtown Dallas' massive 1,840-room Adam's Mark Hotel is expected to be re-branded as a Sheraton, after the hotel's purchase by Oxford Lodging Advisory and Investment Group is finalized, and this should improve the competitive position of the overall market as it relates to capturing major conventions.

Along with an improved convention outlook, Dallas tourism is garnering greater attention. The Ritz-Carlton celebrated its opening on August 15, 2007, representing the first Ritz-Carlton property in Texas, a market long-dominated by Four Seasons and several notable independent luxury properties. Nearby, Victory Park is a new crown jewel for the city, with its hip W Hotel and Residences representing a type of ultra-modern hotel product never before available in the city. Victory Park now boasts ABC's new television facility, featuring a highly visible configuration similar to that of NBC's Today Show in New York City's Rockefeller Center, and new music venues such as the House of Blues. The Mandarin Oriental, now under construction within Victory's new tower, will bring yet another brand and level of luxury accommodations to the city center. Upon completion, Victory will play a major role in transforming the uptown district into a world-class destination.

Dallas continues to transform. City leadership, now with Mayor Tom Leppert at the helm, has been focused on returning growth and revitalization to the city. This leadership, together with a myriad of local developers and committed residents, deserves substantial credit for the city's rebirth. The current phase of evolution, anchored by such hotel projects as the W, the Ritz-Carlton, the Westin Galleria renovation, and the anticipated convention headquarters hotel, will help redefine the city's position on the world stage by 2010. Without a doubt, this is an exciting time to be in Dallas.

[1] Grubb & Ellis, Office Market Trends Report, Second Quarter 2007
[2] Dallas Business Journal, 1998-2006

About the Author:

Rod Clough, MAI, oversees the activities of the HVS Texas office. Rod worked in both the New York and Colorado offices prior to launching the Texas operation. His experience is extensive with all hotel property types and brand segments, including convention headquarters hotels, conference center hotels, golf and spa resorts, commercial limited-service and full-service hotels, and extended-stay hotels. In addition to serving financial institutions and developers, Rod has extensive experience working with municipalities and government-related organizations on their hotel-related endeavors. Rod is a Designated Member of the Appraisal Institute and is a state certified general appraiser.