| TEXAS SNAPSHOT, MAY 2006
Lubbock Office Market
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Kirk Schneider, WestMark Realtors
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During the last few years, the multi-tenant office market in Lubbock, Texas, has been in a sideways trend. Some shift has occurred from inside Loop 289 and the central business district (CBD) to outside Loop 289. Developers have been hard pressed to construct new multi-tenant offices. This is mainly due to the fact that when the lease rates finally supported the construction, building costs took a huge jump. The rental rates would need to be from $21 to $25 per square foot per year for new projects to become financially feasible.
The majority of new office space is categorized as medical use, and several noteworthy projects are underway in Lubbock. The Grace Clinic, a $25 million healthcare project now under construction off the Marsha Sharp Freeway between Quaker and Salem avenues, could change the way patients seek health treatment. One feature, Scott Laboratories’ two-story, 108,000-square-foot structure, will be an out-of-the-box approach to cost containment. The doors of Grace should be open by September.
In other development news, Jim Rheem Development has announced plans to build three new medical office buildings in North Lubbock to serve physicians and other allied businesses. Called The Plazzio, the multi-phase, $4.5 million project will be constructed just northwest of the Lubbock Heart Hospital at the corner of Erskine Street and Winston Avenue. The company plans to break ground on the first of those buildings this spring. Each of the 8,500-square-foot buildings will contain basements geared toward record and supply storage, and, in addition to the office buildings, the company has sold a 4-acre tract to a Tyler, Texas-based group, which is building a nursing home near the site.
Five years ago, full-service office space for upscale buildings was commanding $13 to $16 per square foot per year. Currently, the top rates are from $15 to $17 per square foot per year, involving Class A property, while some new space is breaking the $20 per square foot per year barrier. For the past 5 years, the office vacancy has been near 16 percent for Lubbock proper.
From the groundbreaking at Canyon West, a 144-acre lifestyle shopping campus, to the opening of McDougal Properties’ $26 million Centre at Overton Park, last year brought a lot to the table in Lubbock’s commercial real estate market. The Milwaukee Avenue widening project, which will extend the seven-lane thoroughfare from 43rd Street to 92nd Street, opening a new travel passage for motorists, is a significant project because of how it will affect future development in the region. One of the biggest success stories of the year was captured in East Lubbock when Bemove Ltd. successfully reopened the former Eagle Picher plant.
When it comes to jobs, wage and salary, and high-tech growth, Lubbock ranked seventh in Texas and 85th in the nation, according to the latest Milken Institute’s Best Performing Cities Index for 2005. The city continues to see an influx of new residents who want to be part of Lubbock for a number of reasons, including access to a major healthcare center. The cost of living is another reason. Lubbock is a lot more affordable in which to live and do business than other cities.
Lubbock has enjoyed 10 years of unparalleled growth. According to Amarillo economist Karr Ingham, publisher of the monthly Lubbock Economic Index on behalf of Lubbock National Bank/Lubbock Economic Development Alliance, Lubbock’s economy is growing at a healthy 2.5 percent annual clip. In a decade of growth (1996-2005), nearly 15,000 jobs have been created.
The office market tenant and investor should watch the activity northwest of Lubbock. The development of the Lubbock Heart Hospital, and the peripheral facilities that have sprouted up to support the medical district, created new growth and opportunity for office needs. New infrastructure and intersections along north Loop 289 will provide the routes needed to make this area more accessible from the interior of Lubbock. Another factor in the future of office growth is the resurgence of the CBD. Covering almost a square mile, businesses see opportunities to take advantage of the lively commerce in the area. All around, Lubbock continues to be vibrant and growing, as indicators climb upward.
— Kirk Schneider is broker associate, commercial division, with WestMark Realtors in Lubbock, Texas.
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