Destination downtown? How Dallas’ recovery could get a boost from hybrid work

Destination downtown? How Dallas’ recovery could get a boost from hybrid work

If hybrid work is here to stay, as many believe, can downtown Dallas turn that to its advantage?

It sounds counterintuitive because the central business district depends heavily on office workers who come in for the day. During the pandemic, many got used to working from home — and avoiding the time, hassle and expense of commuting and parking.

They don’t want to go back to pre-pandemic ways, and many say they’d look for another job if forced to return to the office five days a week. Executives are reluctant to mandate a return, in part because the labor market is so tight.

So in the new work world, employers are trying to entice people to come back, to get them to want to drive in. That’s an opening for a destination like downtown.

“Employees are looking for that experience, that unique urban life, where they can walk out and have a million options for lunch or happy hour,” said Dustin Bullard, executive vice president of economic development and place at the advocacy group Downtown Dallas Inc. “As we look at the evolution of work, this is what makes downtown a very competitive market.”

Downtown has added more amenities during the pandemic, including new parks and the AT&T Discovery District. That helps it compete with rival business centers in Plano, Irving and other parts of the metro area.

“There’s nowhere else like it in the metroplex,” said Paul Hendershot, senior director of market analytics for CoStar Group, a real estate information and data provider. “The concentration of restaurants, the number of businesses, the skyline. There’s a unique energy downtown, and it cannot be duplicated.”

Downtown still has lots of challenges. Before the pandemic, about 135,000 people came to downtown Dallas on a typical day; currently, the number is about 80,000, still down 40%, Bullard estimated.

The office vacancy rate in downtown is 25.6%, almost 4 percentage points higher than before the pandemic, according to CoStar. It projects that downtown will have a net absorption of 35,000 square feet of office space in the first quarter; last year, downtown’s net absorption was negative for three of four quarters.

“It’s improving, and the bleeding has stopped,” Hendershot said.

Commercial office space is a key indicator of the health of downtown, but Bullard said other measures matter, too. Sales of mixed beverages have recovered recently with some bars and restaurants approaching pre-pandemic levels. Downtown also added over 1,600 residents in the past two years, a population gain of 13%, according to Downtown Dallas Inc.

Bullard said he’s most excited about people returning, whether it’s to go to the office, attend a convention or simply walk around. The AT&T Discovery District is attracting about 6,000 visitors a day, and many are walking from Klyde Warren Park or the convention center or Farmer’s Market.

“The streets and sidewalks in downtown are bright and busy again,” Bullard said.

In the past two years, over 1,600 apartment units were added in downtown Dallas, an increase of 23%. That helped diversify the economy in the central business district, and momentum continued after the pandemic. Older buildings were put to better use — converting office space to residential.

“The pandemic became an accelerant, and what we thought was a large exposure became a real opportunity,” said Evan Sheets, vice president of economic development and planning at Downtown Dallas Inc.

Downtown had been building up its residential sector for 20 years: “And that really kept us afloat on the day everybody went home from their offices,” Sheets said.

The pandemic affected office space throughout the region, not just downtown. The submarket around the upper Dallas North Tollway and West Plano has an even higher vacancy rate than downtown — 27.2% in March, according to CoStar. That’s over 11 percentage points higher than before the pandemic.

Office vacancies soared in Las Colinas, too, and they jumped in Uptown Turtle Creek, a popular submarket with the highest office rents in the region.

“No one’s really immune to this,” CoStar’s Hendershot said. “It’s across the board and every company is navigating it differently.”

As a region, Dallas-Fort Worth has significant exposure to a declining office market. That’s primarily because it has one of the highest office vacancy rates in the country, said Tracy Hadden Loh, a fellow with the Brookings Institution.

But it also has a smaller share of the workforce in office-based jobs.

“One of those things is easier to fix than the other,” she said, referring to the vacant office space.

She’s bullish on downtown Dallas because it’s a diversified economy with room for growth and “great places emerging in and around downtown,” she said. “I just see a ton of potential. That’s a place where I wouldn’t mind spending more money or time.”

Here’s one metric that isn’t close to full recovery: transit ridership.

In December, the number of monthly riders in Dallas was 2 million lower than in December 2019, a decline of 38%, according to data from Dallas Area Rapid Transit. Ridership on DART light rail was 37% lower than two years earlier.

“Transit is always the slowest one to come back,” said Michael Morris, transportation director for the North Central Texas Council of Governments.

He’s been closely tracking monthly trends since the pandemic, and for most of the time, transit was down by more than half. But the gap has been narrowing by about a percentage point a month since August, he said.

Several other transportation metrics, including traffic on general freeways and tollways, are back to pre-pandemic levels or higher. The most telling data point, in Morris’ view, is the average weekly speed of drivers.

During the early days of the pandemic, average speeds remained between 65 mph and 70 mph all day. By December, the chart showed major drops in average speed around 7 a.m. and 5 p.m.

“Those are the commuters — the return of the workforce community,” Morris said.

As highway delays grow, more people will return to transit. He’s also hoping more companies let employees spend some time working from home.

“Let’s try to not get everyone coming back in their car,” Morris said.

This content was originally published here.

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