North Texas office market posts first gain since COVID

After more than a year of declining occupancy, Dallas-Fort Worth saw a slight increase in net office rental in the quarter just ended.

Corporate office occupancy increased by about 37,000 square feet in the three months to September, according to commercial real estate firm Transwestern.

Although this is a small gain, it is also the first positive office absorption number since the start of the COVID-19 pandemic.

Over the past 12 months, the D-FW area has experienced net negative office rent of nearly 6 million square feet. This is the largest decline in the office sector ever recorded in the region.

“Momentum has definitely turned the corner this quarter,” said Andrew Matheny, Transwestern’s chief research officer. “There was more space freed up than rented, but it was eventually knocked down.

“Small and medium-sized office users are renting again,” Matheny said. “We’re seeing that we’re following the tenants in the market as the big tenants are starting to visit the space, but they’re not pulling the trigger yet.”

With just over half of D-FW office workers still at home due to the pandemic, many large employers have held back from renting more space in office buildings.

About 18.6% of Dallas-area office space was empty in the third quarter. And in Fort Worth, about 11% of office space was vacant, Transwestern estimates.

This does not include an additional 9.85 million square feet of sublease office space up for grabs in the region.

“The market is starting to absorb sublease space, although two big announcements have resulted in an increase in the total amount,” Transwestern analysts say.

Areas with the largest office net lettings in the third quarter include the West Plano and Frisco Toll Corridor with nearly 435,000 square feet of office transactions and Irving’s DFW Freeport area with over 300,000 square feet of lettings net. Dallas’ Uptown neighborhood had over 178,000 square feet of office absorption.

There have been continued steep declines in office occupancy in Lewisville, Las Colinas, along the LBJ Freeway and in Richardson, Transwestern reports.

Some of the largest D-FW office leases signed in the third quarter included transactions by Multiview in Las Colinas, Rushmore Mortgage in Irving and Trintech in Plano.

Approximately 4.6 million square feet of office space in the Dallas area was under construction at the end of the quarter.

Around 60% of the office buildings under construction in the region are already let.

“There aren’t a lot of real no-lease projects going on,” Matheny said.

Average office rents in the Dallas area are up about 6% from pre-pandemic levels.

“This growth is remarkable given that vacancy rates remain at recessionary highs, which may reflect an inflation premium rather than conventional pressure from tight vacancies and increased competition for space,” Matheny said. “If so, stronger rental growth could occur in 2022 as vacancies begin to dwindle, pent-up demand rapidly intensifies competition for quality space and inflation remains elevated.”

Jose C. Birney