Similar to many office markets across the country, the metroplex has experienced fallout from the pandemic and recession. Net annual absorption is well into negative territory, with -3.3 million SF over the last 12 months. For the first time since 2010, the market has reported six consecutive quarters of negative net absorption. Market conditions are showing signs of improvement in the second quarter with 58 thousand square feet of negative net absorption compared to the 2.6 million square feet of move-outs in the first quarter. Leasing activity is improving as well with 3.6 million square feet, for a total of 7.1 million square feet for the first half of the year.
The amount of sublet space has put additional stress on the market, as well. The amount of sublet space available has increased by 3 million SF since early 2020, reaching 9.1 million SF. This is beginning to trend in the right direction since the start of the second quarter, decreasing by 128,000.
Construction activity remains robust, with 4.9 million SF delivered in the last 12 months and 6.7 million SF of space currently underway. Several large build-to-suits accounted for the lion’s share of positive absorption, including American Airlines moving into its new 1.7 million-SF headquarters in Fort Worth and Charles Schwab moving into its 580,000-SF Westlake Campus. Keurig Dr Pepper and the PGA headquarters are building new headquarters facilities in Frisco. There is a significant amount of spec space underway or recently delivered in the last 12 months. For example, the 215,000-SF The Stack in Deep Ellum was completed in early 2021. In the Victory Park section of Uptown, Hillwood is expected to deliver the 365,000-SF Victory Commons One in late 2021. As of mid-year, the building has no preleasing activity.
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 make the metroplex attractive. Add in the accessibility provided by a robust air transportation network and competitive incentive packages offered by the State of Texas and local municipalities, and the region is a hotbed for corporate expansion and relocations.
Before the pandemic, the metroplex was on solid footing. In 2019, the market absorbed 5.7 million SF of office space. At 18.0%, the vacancy rate may appear high for many metros, the region has averaged between 15%- to 17% since 2010. As companies re-evaluate space or possibly hold off on any moves, leasing volume has slowed significantly. For the first time in a decade, the metroplex has experienced five consecutive quarters of negative net absorption, totaling 5.8 million SF. At the same time, the market had 4.2 million SF of new space delivered.
There were just over 1,400 new/direct leases signed in the second quarter. Of those, 22 were 20,000 square feet or greater. The Dallas Central Business District and Uptown captured half of these large leases. The largest being the FDIC signing a 163 thousand square foot lease in the Plaza of the Americas building. Also in downtown Dallas, Hilltop Securities signed a 95,500-SF lease in 717 Harwood, taking four floors of the 844,000-SF building. While leasing activity is improving, the amount of sublease space is impacting market fundamentals. The amount of available sublease space has increased by 3 million square feet since the beginning of 2020. The amount of sublease space has remained stable in the first half of 2021. Our forecast is anticipating the market to return to some level of normally with 622 thousand square feet of positive net absorption in the third quarter and stronger fourth quarter.
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.