Dallas - Fort Worth Office Summary -3Q 2022
While there are signs of a recovery in the office market, headwinds still remain. As a result of the pressures of increased work-from-home policies and the amount of sublease space available remains stubbornly high, CoStar is anticipating increased downsizing and more subdued net absorption in the long term. With workplace occupancy still trending at around 45% per Kastle occupancy data, many occupiers expect to reevaluate their space needs.
The metroplex is reporting 3.3 million SF of positive net absorption over the last 12 months. 22Q1 marked the fourth consecutive quarter of positive net absorption, indicating a stable recovery. Unfortunately, the metroplex experienced a setback in the second quarter with 56,000 SF of negative net absorption. A few of the contributors to this negative net absorption were move-outs in the Galatyn Commons One (-215,400), The Terraces at Solana Building 2 (-124,700), and Legacy Central 1 (-103,700). Solid leasing activity of nearly 19 million SF of new leases signed in 2021 should drive net absorption in the second half of 2022 as tenants begin to occupy their new spaces. CoStar reported 2.6 million SF of positive net absorption in 22Q3, the highest level since mid-2018.
Several large build-to-suits were completed in the year's first half, contributing to positive net absorption. Charles Schwab moved into its 580,000-SF Westlake Campus. Additionally, Paycom moved into its 150,000-SF 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. In addition, Galderma moved into the 15th and 16th floors of the Trammell Crow Center, occupying 51,900 SF.
The amount of sublet space available has put additional stress on the market. The available sublet space has increased by more than 4 million SF since early 2020, reaching 10.9 million SF. Most recently, Peloton announced it is downsizing its headcount in its Plano office. As a result, the company is putting 104,000 SF of office space on the sublease market. One of the larger spaces to be put on the sublease market is Thryv, located in the former Braniff Headquarters on D-FW Airport, which 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 makes increasing rents difficult for landlords, many tenants are taking advantage of the flexibility and shorter lease terms a sublease provides. The market reported 1.6 million SF of subleasing activity in 2021 and 1.2 million SF YTD. In areas with a high concentration of Class A and trophy assets, sublease activity has increased significantly. For example, in Uptown, subleases accounted for 14% of the total leasing activity. By comparison, from 2017 to 2019, subleases accounted for an average of 5% of the total leasing activity.
In addition to the glut of available sublease space on the market, the amount of available direct space in existing or under construction buildings has reached a decade high of 87.2 million SF. There are 10 existing buildings with over 500,000 SF available. These include 5400 Legacy, Renaissance Tower, CAL West, and Fountain Place. In terms of buildings under construction, the 496,000-SF Tower at Hall Park is expected to be completed in 2023; it currently has 387,000 SF available. Granite Park Six is also anticipating a 2023 delivery; the 422,000-SF building has 369,700 SF available. The 339,000-SF Quad in Uptown has 319,000 SF available.
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 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 competitive.
As of early October, the market has reported 4,200 new leases signed, totaling 15.8 million SF, on pace to surpass last year's total of 19 million SF. One of the more exciting deals of the year was retailer JCPenney moving back into its former corporate headquarters in Plano that was sold and rebranded as CALWest. The company is moving into its 280,000-SF space in late 2022. The CityLine development in Richardson landed a significant 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 established in the fall of 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.
There is currently 7.4 million SF under construction, with 32% preleased. The current vacancy rate is 17.3%. 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%).
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.