TEXAS SNAPSHOT, MAY 2010

El Paso Office Market

Mills Plaza Properties is busy with a renovation to the Mills Building as part of the company’s Mills Plaza District project in Downtown El Paso.

El Paso, located in far west Texas between Old Mexico and New Mexico, is the only major Texas city in the mountain time zone. It sits at an almost equal distance from Houston and Los Angeles. Combined with its sister city of Ciudad Juarez, Mexico, across the river, it is the largest bi-national metroplex in the Western Hemisphere.

The El Paso metropolitan area’s current estimated population is more than 800,000 people, while Juarez is home to approximately 1.6 million inhabitants. It is estimated that the El Paso population will grow by approximately 35 percent between 2000 and 2020. El Paso is the sixth largest city in Texas, and it is the 21st largest city in the United States. The biggest employers in the area, excluding retail, include  Fort Bliss, the El Paso ISD, Tenet Healthcare and the City of El Paso.

The recent $4.5 billion expansion at Ft. Bliss is a bright spot in the area’s economy. The base is growing by approximately 20,000 soldiers, and this growth is expected to create increased demand in housing as well as in the education and medical fields. In other news, the recently completed Texas Tech Medical School is combining efforts with the Medical Center of the Americas to focus on border health issues.

The Regional Economic Development Corporation’s (REDCO) recruiting has been concentrating on homeland security, life sciences, alternative energy and automotive strategies. In spite of the national economic downturn, these programs and the recent developments mean interest in the area has been high.

A large portion of El Paso’s economy is tied to activity across the border. Most of the 55 million square feet of industrial space in the city is directly related to the 57 million square feet of space in Juarez. Typically 5 percent to 10 percent of the El Paso’s industrial space is finished out in office.  (A 100,000-square-foot distribution center will usually have 5,000 to 10,000 square feet of office space.) This phenomenon makes the market different than other major Texas cities.

Like most cities, El Paso’s office market has its origins in the Central Business District. During the last few years, there has been lots of activity in the area in conjunction with a downtown revitalization effort.

The Borderplex Community Trust purchased the Wells Fargo and Chase Towers, two local landmarks that were built in the 1960s and 1970s, respectively. Both Class A  properties are among the tallest buildings in town and have been recently remodeled. Occupancies are estimated in the 80 percent to 85 percent range, with asking lease rates starting at $14.00 per square foot.

Renovation and construction is also under way on two historic downtown properties. Mills Plaza Properties is working on  the 160,000-square-foot Mills Building, and the 106,000-square-foot Centre Building is also receiving a facelift. The properties will see their first new tenants in September. These facilities are described as Class A, state-of-the-art buildings that feature amenities not found in other local properties. Leasing is said to be going well. Western Refining is the major tenant in the Mills Building.

The largest owner of suburban office space in town is the Shalom Group. They manage the 17-building, Class A Epicenter, which spans 450,000 square feet, in West El Paso. The Shalom Group also owns an additional 450,000 square feet of various classes of office space throughout the city. Asking lease rates on their various properties typically run from $12.00 per square foot to $20.00 per square foot.

Suburban properties typically offer better parking and lower operating costs than their downtown competitors. This is attributed to higher story buildings being more expensive to operate.

Some local developers are having success with office showrooms space in various submarkets. The Karam Company offers modular condominium space for sale or lease in a garden setting. Their Desert Gardens West (38,400 square feet) and Pellicano Park (55,900 square feet) are performing well. The Texas Tech Medical School recently leased a portion of Pellicano Park.

Construction is underway on the City View Medical Plaza at “Pill Hill” in Central El Paso. Plans call for an 80,000-square-foot medical office building occupying a portion of the 16.4-acre site. This project is a joint venture between T.V.O Development and Empressas Ixtlan. A hotel and some medical office space built in the 1950s were torn down to accommodate the development. This site is in close proximity to 32 medical office buildings, which total 767,452 square feet.

Like many places, the El Paso office market has transformed over the years, seeing a jump from downtown to suburban and a movement from high rises to garden-style properties. The market has always been relatively stable, and lease rates continue to remain flat through the downturn. In many cases, the cost of construction has impeded new development. Building costs can range from $100 to $200 per square foot. Land prices for suburban locations typically run $4.00 to $6.00 per square foot. Because of these costs, investors find it difficult to compete with exiting space and achieve their target returns.

Community leaders are also focused on bringing in more white collar jobs to the area. These efforts, coupled with growth at Fort Bliss and Texas Tech, should provide a favorable impact on the El Paso office market.

— Max Prestridge is a sales and leasing associate with NAI El Paso, where he specializes in land and income properties.

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