As Texas Grows, Large Employers Often Target Space outside CBDs

As shown by high-profile developments in metro areas like Austin and Dallas/Fort Worth, Texas is redefining the notion of the central business district (CBD), said the president and chief executive officer of the Texas Economic Development Corp. speaking at the ULI Texas Forum in Austin.

Robert Allen, who has led the statewide economic development nonprofit for two years, said in an interview that companies increasingly are hunting outside urban environments in Texas for relocation and expansion opportunities. One reason is that suburban locales offer more room—and cheaper land—for expansion than do urban cores, he said.

Companies will maintain urban footprints, he said, but a number of major employers in the Austin area are expanding away from the CBD. For instance, tech giant Apple already employs more than 6,000 people at a campus in a suburban submarket in Austin and plans to spend $1 billion to build another campus nearby that could accommodate up to 15,000 employees.

Nonetheless, employers such as Google are betting big on downtown Austin. The search engine behemoth has leased an entire 35-story office high-rise that is under construction in Austin’s CBD. The Google lease underscores the status of downtown Austin as “the epicenter of Austin’s tech workforce,” Russell Young, managing director in Austin for commercial real estate services company JLL, told Forbes.com.

For centuries, CBDs have been the commercial and cultural hearts of major cities around the world, including Austin, Dallas, Fort Worth, Houston, and San Antonio. However, suburbs in these Texas regions are emerging as alternatives to traditional CBDs.

Scott Studzinski, a partner at Austin-based commercial real estate firm Elevate Growth Partners, told Forbes that with big tech companies snapping up prime CBD space in Austin, smaller tech businesses are searching for offices in spots outside the CBD.

“These areas are now rich with walkable amenities that now rival the CBD, albeit without the parking and scooter headaches,” Studzinski said. “We think this trend will continue.”

A prime example of walkable suburban CBD-type projects is the adjacent Domain and Domain Northside mixed-use developments in north Austin. Major employers such as Amazon, Facebook, and Indeed continue to scoop up office space in these two developments while more apartment buildings go up. This year’s ULI Texas Forum was held at the Domain’s Westin hotel.

The Domain complex, about 10 miles (16 km) north of downtown Austin, has been dubbed Austin’s second downtown. IBM previously occupied the site.

Meanwhile, the Dallas/Fort Worth suburb of Westlake, about 30 miles (48 km) from the two downtowns, and other suburbs keep attracting corporate heavyweights.

San Francisco–based Charles Schwab, a Fortune 500 financial services giant, is developing two office buildings in Westlake encompassing almost 1.2 million square feet (111,000 sq m) on nearly 60 acres (24 ha). Soon Westlake also will be the new corporate headquarters for Fortune 500 company Core-Mark, a distributor of fresh and frozen foods to convenience stores. For now, Core-Mark’s headquarters remains in suburban San Francisco.

Other Dallas/Fort Worth suburbs, such as Irving and Plano, have long been hubs for Fortune 500 companies and associated CBD-like developments.

In 2017, a report from commercial real estate services company CBRE noted the attractiveness of suburban offices with urban-style amenities to employers and employees alike.

“Suburban office submarkets with urban characteristics are in the best position to capture occupier demand and may provide unique opportunities for occupiers to secure space at lower rents and for investors to buy at lower prices in areas that are poised for future growth,” CBRE researchers wrote.

In Texas, the rise of suburbs as CBD substitutes is taking place in tandem with suburban population growth.

Three suburban counties in major Texas metropolitan areas—Comal (San Antonio), and Hood and Kaufman (Dallas/Fort Worth)—were among the country’s 10 fastest-growing counties on a percentage basis from 2017 to 2018, according to the U.S. Census Bureau.

Suburban counties near Austin, Dallas/Fort Worth, Houston, and San Antonio are projected to see population growth rates higher than Texas as a whole through 2050, according to the Texas Demographic Center. The center forecasts that 27 of those suburban counties will double their population over the next three decades.

So, will the ascendance of Texas suburbs result in the downfall of CBDs in Texas—and elsewhere? In 2015, an article published by CityLab questioned whether traditional CBDs would someday vanish. It pointed out that the “idea of squeezing a city’s office space into a tightly confined central hub may soon start to seem as antiquated as tight-lacing a body into a Victorian corset.”

“We go to CBDs because that’s where other people are, not because they’re wonderful places to spend time,” futurist Bryan Boyer said at a CityLab event in 2015. “In San Francisco and Brooklyn, real estate downtown is incredibly expensive and the quality of the spaces there isn’t that great. The strongest neighborhoods [by contrast] are really places where there are people working, people shopping, people relaxing in the park.”

Others, however, are not ready to write off traditional CBDs. A 2017 study by ULI and professional services firm EY, “The Attractiveness of World-Class Business Districts,” proclaimed that CBDs are adapting and changing to meet 21st-century challenges.

CBDs “are expanding, refurbishing, and transforming themselves so as to retain and attract companies, entrepreneurs, students, residents, and visitors to dense city districts that blend high-rise buildings with an ever-richer tableau of activities and attractions,” the study said.

The study noted that the single-use business district—largely devoid of people after the workday ends—“is no longer an attractive option.” To attract and retain talent, CBDs must create live/work/play environments, it added.

Successful CBDs “are no longer just locations for work. The business districts of today and the future must be diverse, dynamic, and multidimensional places for living,” the study said.