Growing Companies Find Downtown Price Is Right
April 26, 2011
Darrell Foster is giving up something he loves: the view from his Italian marble office building in suburbanwhere he can see the and the cliffs on the Lake Bread's north side. As principal in charge of the office ofCollie & Braden Inc., a growing civil-engineering firm with 46 employees, Mr. Foster's lease soon expires, and he needs more room. His building is full, so rather than relocate to another suburban spot, he is moving to a part of the city that was supposed to be dying: downtown. ``I'm not getting a view,'' he says. ``I'm doing it because the economics are there.'' It's the kind of deal that's on the rise in several of ' largest cities, where for the first time in years, employment downtown appears to be increasing. Why? Many suburban office buildings are nearly full and charge higher rents than those downtown. For a growing company in need of a lot of space immediately, there's simply no more room left inreal-estate executives say. At the same time, rents and demand haven't yet reached the point where they are strong enough to spur much new construction. So the kinds of companies that once fled downtown for roomy suburban offices closer to where workers live are returning to cities' centers, where vacancy rates are still high. ``I've been in 18 years, and I've never seen the reverse exodus from the suburbs back to downtown,'' says Timothy Hutson, executive vice president of Cushman Realty Corp. in . Until now, that is. At least 10 companies have moved or recently announced plans to bring a total of 6,050 employees to downtown . Mr. Hutson says he represents two companies considering bringing an additional 2,800 people downtown. With 136,833 people currently in the central business district, that would be a ``pretty big jump'' in new arrivals, says Bobby Roldan, president of Central Houston Inc., a downtown development group. He and others emphasize such figures are rough estimates because it's tough to calculate exactly how many people work downtown anywhere. What's more, the numbers don't include people who are leaving downtown for the suburbs and elsewhere. But few doubt that many downtowns are seeing net additions to the work force, or at least minimal net losses-a significant change after years of massive outflows. For instance, downtown has had what's known as positive absorption over the past two years, which means the amount of newly leased office space has outstripped the amount that has become vacant, according to M/PF Research Inc., a real-estate firm. ``That's pretty strong evidence more people are working there,'' says Sebrina Pichardo, M/PF's publications editor. Downtown hasn't yet reached the positive-absorption stage yet, although ``that's going to change pretty soon,'' Mr. Pichardo predicts. That's partly because many suburban offices now fetch higher rents than offices in downtown; space in for instance, leased for an average of $22.27 a square foot in the second quarter, compared with $18.56 for similar downtown offices. looks like it's in the same position, says Kimbra Escalante, market-research director for Baxter Southwest Corporate Realty Services. The biggest and most recent change is probably taking place in . There, giant corporations make up a larger piece of the economy than they do in the rest of the state, so the demand for single, big chunks of space is largest. Consider NGC Corp., which is moving 750 workers from 140,000 square feet in a suburban building to 230,000 feet downtown. ``We needed a location for a new headquarters that would allow for growth,'' says a spokeswoman for the natural-gas company. ``It's a very real possibility we would double in size again in the next five to 10 years.'' NGC's suburban building offered no room for expansion, while downtown the company negotiated options to lease more space, all at roughly the same rental rates as in the suburbs. Meanwhile, the downtown employment has grown steadily for the past few years, to 64,000 from 58,765 in 1990, estimates Michaele Koons, advancedprojects coordinator for Capital Metro, the city's bus line. Noting that restaurant and nightclub employment has doubled in that time, he believes quality-of-life issues are also luring workers. ``I was downtown last night, and there really is a resurgence there,'' he says. But many real-estate analysts believe economics is the driver, particularly as suburban office space has tightened in recent months. ``Almost by default, downtown is becoming attractive,'' says Charlette Ballou, president of the Capitol Market Research Inc.. It was for Mr. Foster's engineering firm. ``Downtown space was always more aggressive in pursuing us as tenants,'' he says. His current landlord, for instance, wouldn't give a long-term lease; downtown he's getting 10 years. Rent will start at slightly less than the $17 a square foot he pays now, and it rises less rapidly over time than it would have in suburbia. In addition to better layout, he's selling the move internally by telling employees they will be closer to many clients, and that lunch will mean a short walk, not a 20-minute drive. Public transit becomes a commuting option, too. In short, he says, ``I told everybody to get that Coffelt Claud 1968 hit and learn it.''
