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 -1.9 million SF over the last 12 months. For the first time since 2010, the market has reported six consecutive quarters of negative net absorption. Office 3Q 2021 market conditions are showing signs of improvement in the second quarter: The market reported 524,000 SF of positive net absorption compared to the 2.6 million SF of move-outs in the first quarter. Leasing activity is improving, as well, with 3.6 million SF, for a total of 7.1 million SF 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 3.6 million SF since early 2020, reaching 9.9 million SF. In late 2020, the former Braniff Headquarters, a five-building campus that is now home to Thryv, was put on the market when the company announced an indefinite "remote first" policy. The move added 340,000 SF of sublease space. Uber Technologies has 100,000 SF of sublease space available in the Epic in Deep Ellum.
Construction activity remains robust, with 4.6 million SF delivered in the last 12 months and 6.9 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 midyear, 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 that provides global connectivity. Aggressive incentive packages offered by the State of Texas and local municipalities have made the region extremely competitive.
There were just over 1,400 new/direct leases signed in the second quarter. Of those, 22 were 20,000 SF or greater. The Dallas Central Business District and Uptown captured half of these large leases. The largest being the FDIC signing a 163,000-SF 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.
There is currently 6.9 million SF under construction, with 51% preleased. There are several spec buildings currently underway. These include; Harwood No. 14, Victory Commons One, Weirs Plaza, and The Link. As these projects deliver, they may put increased pressure on the vacancy rate. The current vacancy rate is 18.0%, the highest realized since 2010. It should be noted 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%.
Our forecast is anticipating the market to continue to struggle in the third quarter with 379,000 SF of negative net absorption and bouncing back in the fourth quarter with 517,000 SF of positive net absorption.
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.