Richardson June 2021

VACANCY TRENDS

CONTINUED FROM 1

The city saw its biggest increase in vacancy trends between the rst and second quarters of 2020, when the pandemic caused a slew of businesses to permanently shut their doors. Those rates have only slightly improved so far in 2021.

from which will be realized in the city’s scal year 2021-22 budget. This is the lowest growth since 2012, when property values grew by 0.7%. All g- ures are estimates until certied by the appraisal districts this summer. Deputy City Manager Don Magner said the lack of growth is likely due to a decline in Richardson’s commercial market during the pandemic. “What we’re seeing, we believe, is still a strong residential market. But that is being negated to some extent by [the] commercial market,” Magner said. “[The] negative commercial is having an eect on overall [market] growth.” Magner said much of the com- mercial market’s dip in value can be attributed to a trend in the retail and restaurant sector that saw many ten- ants struggling to pay rent. A rise in remote work did not aect commer- cial values as long as oce tenants continued to make lease payments, he said. Despite a shaky oce and retail market, Richardson’s industrial and residential properties performed well during the pandemic, according to the Richardson Economic Develop- ment Partnership. These wins went a long way in advancing the city’s overall property valuation. Dallas Central Appraisal District estimates values in the Dal- las County portion of the city are up about 16% year-over-year. Values in the Collin County portion of the city are estimated to increase by just under 1%. Collin CAD declined the opportunity to comment on its value estimates. Parsing thenumbers Richardson has nearly 22 million square feet of oce space, according to a May presentation by the Rich- ardson EDP. In the fourth quarter of 2019, 14.7% of that space was consid- ered vacant. By the second quarter in 2020, oce vacancies rose to 15.5%. The presentation also showed that of the more than 7 million square feet of total retail space in the city, 8.5% was available for lease in the fourth quarter of 2019 versus 9.6% at the same time in 2020. So far in 2021, commercial vacan- cies remain largely unchanged from the end of 2020, the Richardson EDP report conrmed. Commercial real estate services rm CBRE Group esti- mates a 24% oce property vacancy across the Dallas-Fort Worth market,

*Flex space is dened as property that can be used for more than one commercial purpose.

Flex*

Retail

Oce

3.5M 3.2M 3.3M 3.4M 3M 3.1M

For comparison, the average Starbucks is 1,500 square feet. The amount of vacant oce space between January and May of this year equals 2,267 Starbucks.

600K 800K 700K 900K

Q2 2020

Q3 2020

Q4 2020 Year-to-date 2021

Q4 2019

Q1 2020

SOURCE: RICHARDSON ECONOMIC DEVELOPMENT PARTNERSHIPCOMMUNITY IMPACT NEWSPAPER

A SLIGHT INCREASE The city’s overall property valuation is expected to increase only slightly year-over-year. These numbers take into account adjustments made after the protest process as well as property within tax increment nance zones, revenue from which is used to fund infrastructure in those areas.

the highest rate since 2004. When estimating a commercial property’s value, Dallas CAD looks at whether the property is income-pro- ducing, Director of Community Rela- tions Cheryl Jordan said. Factors such as occupancy and unpaid rent play into value calculations. “If a business has closed, and [the tenants] were renting space, now they are not paying rent,” Jordan said. “So the owner of that commercial struc- ture’s expenses have gone up, and he’s getting less income.” Many companiesworked fromhome during the pandemic, but the value of oce space would only be aected if business owners canceled their lease or chose not to renew, Jordan said. “If there is a lease in place, it’s being rented,” she said. “Whether you are there or not does not have any impact … on the property owner.” While remote work may not have aected property values, it was detri- mental for companies that sold goods and services to the local workforce. Eleven years ago, Amy Long and her husband, Kevin, started Orchard at the Oce, a Richardson-based business that delivers fresh produce to oce buildings. Long said the mass exodus from commercial prop- erties seen during the pandemic was especially challenging. “It’s devastating, it’s absolutely dev- astating. We’re still down about 88%of where we were in March of [last year],” she said. “If everyone works from home, we don’t have a business.” Prior to the pandemic, Orchard at the Oce delivered fruit and healthy snacks to roughly 600 oces in Dal- las-Fort Worth. As many employees

began working remotely, Long said they switched to home delivery to try to accommodate their customer base. She said as of lastmonth,more of the companies they serve have returned to their oces, albeit in smaller numbers. “They have sta coming in, maybe two or three days a week. It’s a smaller sta,” she said. “Things, I believe, are starting to turn around for us.” The dip in oce and retail activity in Richardson was oset by the increase in residential and industrial values. Industrial properties have per- formed well during the pandemic due to the increased need for space to store online orders, Jordan said. “Industrial is actually thriving more because of COVID,” she said. “Warehouse values have gone way up because there is a big demand.” In an annual review, the Richard- son EDP said manufacturing and IT service companies were least aected. Retail businesses, such as restaurants, salons and tness stu- dios, struggled the most, according to the report. Looking ahead John Jacobs, executive vice pres- ident for the Richardson EDP, said the city is unique because more than half of its taxable property is com- mercial rather than residential. That’s benecial for Richardson’s residents because those companies pay more of the city’s property taxes, Jacobs said. “When you live in Richardson and you’re driving past a tall oce build- ing, you look up and know they’re paying [taxes] for all that space,” he said. He estimated that 80% of people

$17.29BILLION

2020 certied

$17.46BILLION

2021 estimate

+0.98% increase

SOURCE: CITY OF RICHARDSON COMMUNITY IMPACT NEWSPAPER

who work in Richardson don’t live in Richardson, while most residents who live in Richardson work else- where. Jacobs said he believes the decline in oce and retail activity is a “small and temporary blip.” “[Richardson] has been much, much less aected by the pandemic than most other cities that didn’t have the business base we had,” Jacobs said. Jacobs said he believes the commer- cial model has permanently changed but that in-person operations will still be vital to success. “The more innovative a company is, the more important it is for them to collaborate in-person,” he said. Olivia Lueckemeyer contributed to this report

For more information, visit communityimpact.com .

COMMUNITY IMPACT NEWSPAPER • COMMUNITYIMPACT.COM