DFW MARKET INSIGHTS – OFFICE – 1Q 2022

Dallas – Fort Worth Office Summary – 1Q 2022

1Q 2022 Office Market

A healthy rebound is unfolding throughout DFW’s office market with 3.0 million SF of positive net absorption over the last 12 months. 22Q1 will mark the fourth consecutive quarter of positive net absorption. Solid leasing activity of nearly 19 million SF of new leases signing should carry this trend through the second half of 2022.

Several large build-to-suits were completed, contributing to the positive net absorption. Charles Schwab moved into its 580,000-SF Westlake Campus. Additionally, Keurig Dr Pepper recently completed its new headquarters in Frisco. Nearby, the PGA is well underway with a new headquarters facility. Meanwhile, JPMorgan Chase moved into its 540,000-SF space in Legacy West. In addition to the activity in the build-to-suit environment, high-quality, recently renovated product in downtown Dallas is drawing interest from office occupiers. For example, Integrity Marketing Group moved into its 100,000-SF space in the iconic Fountain Place.

The amount of sublet space available has put additional stress on the market. The amount of available sublet space has increased by 3.9 million SF since early 2020, eclipsing 10 million SF. In late 2020, Thryv located in the former Braniff Headquarters on D-FW Airport put its entire 340,000-SF campus on the market when the company announced an indefinite “remote first” policy. Meanwhile, Uber Technologies has just over 100,000 SF of sublease space available in the Epic in Deep Ellum. While this extra space is making increasing rents difficult for landlords, many tenants are taking advantage of the flexibility and shorter lease terms a sublease provides. The market reported 1.5 million SF of subleasing activity in 2021. In Uptown, subleases accounted for 14% of the total leasing activity.

Construction activity has been relatively restrained. Due to the uncertainty generated by the hybrid work model, a shortage of skilled construction workers, and rising construction costs, many developers have held off breaking ground on new projects. At the end of the first quarter, there was 1.5 million SF of construction starts. From 2015 to 2019, the market averaged just over 2 million SF of new construction starts a quarter. 5.2 million SF delivered in the last 12 months, and 7.5 million SF of space is currently underway. The spec buildings that have been delivered recently have been leasing well. For example, the 215,000-SF The Stack in Deep Ellum was completed in early 2021 and was fully leased in early 2022. In Preston Center, the 12-story, 297,000-SF Weir’s Plaza was delivered in early 2022 and is fully leased. Law firm Kirkland & Ellis has leased the top three floors, totaling 65,900 SF. They are joined by Fortress Investment, which also signed a 47,850-SF lease.

The amount of available sublease space has been on anchor rent growth. After briefly dipping into negative territory, annual rent growth is positive at 0.9%. The greatest gains are found in Uptown/Turtle Creek, Garland, White Rock, and Rockwall.

Take a look at the individual Submarkets in our DFW Office Market Report:

Leasing

The momentum of 2021 has carried into 22Q1. There were 1,370 new leases signed, totaling 4.8 million SF, on pace to surpass last year’s total. The average deal size was 3,500 SF. The CityLine development in Richardson landed the largest new lease. Construction firm McCarthy Companies signed a 43,000-SF lease at 3400 CityLine. The five-story, 313,000-SF building was delivered in 2017 and is part of a massive 186-acre mixed-use development that was established in fall 2016 by developer KDC. In addition to the three office buildings totaling 1.4 million SF, there is a significant retail offering, which includes Whole Foods, Fish City Grill, and Fernando’s Mexican Cuisine. The development also includes many residential options with 1,900 townhomes and luxury apartments. In the fast-growing far north suburb of McKinney, California-based healthcare software firm Review Wave is joining Common Desk at 300 E Davis St. with a 34,900-SF lease. The company plans to create 73 high-tech and executive jobs over the next three years, bringing the company’s total employment to 130.

Just over 5,500 new leases were signed in 2021, totaling 18.9 million SF. Of the leases signed during this period, 133 were 20,000 SF or greater. One of the largest was the FDIC signing a 163,000-SF lease in the Plaza of the Americas building. It is moving out of an office in downtown’s Energy Plaza. The Plaza of the Americas is unique, featuring just over 1 million SF of office space across two 25-story office towers, a Marriot hotel with 40,000 SF of event space, and a 13-story glass atrium that has more than 20 retail and restaurant options. Also in downtown Dallas, Hilltop Securities signed a 95,500-SF lease in 717 Harwood, taking four floors of the 844,000-SF building. 

Corporate relocations and expansions continue to drive office demand in Dallas-Fort Worth. A highly skilled labor force, low business costs relative to coastal markets, and a central location add to the metro’s attractiveness. A robust air transportation network that provides global connectivity also supports the metro’s accessibility and attractiveness to office-using employers. Aggressive incentive packages offered by the State of Texas and local municipalities have made the region extremely competitive.

There is currently 7.5 million SF under construction, with 32% preleased. The current vacancy rate is 17.6%, the highest realized since 2010. It should be noted that the vacancy rates in the metroplex are notoriously above what is found in many larger markets. Since 2010, the region has experienced an average vacancy rate between 15% and 17%. For example, the New York metro had an average vacancy rate of 9.2% during this period, while Chicago averaged 13.2%. Even high-growth areas were below the metroplex: Atlanta (13.4%), Charlotte (10.1%), Denver (11.7%), and Orlando (9.3%).

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The information contained herein was obtained from CoStar; however, Bradford Companies makes no guarantees, warranties, or representation as to the completeness or accuracy thereof. The presentation of this property is submitted subject to errors, omissions, change of price or conditions prior to sale or lease or withdrawal without notice.

May 2, 2022

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