Dallas-Fort Worth office market report
DFW’s recovery continues. Jobs have fully rebounded from the pandemic-related losses and, while 2021 was still a recovery year, the most recent numbers show DFW has crossed the 4-million employment mark for the first time. Driven by these net new jobs, DFW continues to expand economically, driven by its diverse economy and ongoing relocations to the region. The office sector in this downturn was particularly hard hit locally with fast rising vacancy and high negative space absorption, which is no different than most markets. Overall, we expect it will require several quarters to show meaningful recovery in basic metrics such as vacancy, sublet availability, and return to the office. The move towards quality, however, will continue and pressure lesser buildings throughout the submarkets as tenants seek better space at the optimum location for their workforce.
Much of the pre-pandemic construction pipeline has been put on hold as the economy worked through its recovery, although development activity is ramping up especially for build-to-suit projects.
After close to 5 million square feet of negative absorption in 2020 and 2021, demand finally turned positive in Q1 2022. This shift is an important benchmark that needs to be monitored because the 2020 and 2021 levels were the most significant economic slowdown in the office sector ever seen in DFW.
Direct asking rent
Asking rent continues to inch up. Since early 2018, full-service rents have increased 2.7% annually. This growth, however, is balanced against higher concessions to close a deal, especially on longer terms and larger requirements. There is a concerted effort to move the concession package towards higher tenant improvement dollars that fall to the capital budget, as opposed to higher free rent which impacts future NOI growth.
Total availability is now running 29.1%. This reflects an increase of five percentage points from what was considered a balanced market during the last economic cycle.
DFW vacancy is running 24.7%, compared to 19%-20% during the best times of the last economic cycle. While its rise has appeared to stabilize as of Q1 2022, this vacancy is the highest recorded in DFW since the late 1980s commercial real estate downturn. As the return to office gains momentum, look for this level to moderate to more balanced conditions over the next four to six quarters.
As of year-end 2021, DFW was one of the U.S.’s most active office investment markets. Sales volumes hit $6.2 billion in 2021, with $2.3 billion the fourth quarter alone. This compares to around $5 billion in 2018 and 2019. Buyers are attracted to DFW for its diverse economy, probusiness environment, and attractive office investment values – where dollars go further with trades averaging $207 per square foot as of year-end and cap rates typically 100 to 150 basis points above gateway markets.
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Get in-depth office market reports and insights from commercial real estate experts in the Greater Dallas-Fort Worth (DFW) area. Avison Young advisors look at DFW commercial real estate activities and the latest DFW statistics to provide you expert market research on the area’s office properties.
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