Dallas' Dynamic Job Wave

OFFICE MARKET REPORT Dallas’ Dynamic Job Wave Winter 2020

Decelerating Booming Expanding Rent Growth Investment Activity New-Supply Pipeline DALLAS OFFICE MARKET

Market Analysis First Quarter 2020 Employment Boom Boosts Office Demand Contacts Bolstered by its highly skilled workforce and low cost of doing business, Dallas’ office market continues to Jeff Adler Vice President & General expand rapidly. Demand is on the rise, with coworking Manager of Yardi Matrix companies leasing more than 750,000 square feet in [email protected] 2019, for a total shared-space quantity of 3.6 million (800) 866-1124 x2403 square feet or 1.3% of the existing inventory. And with interest predominantly from small, local firms, the co- Jack Kern working sector is expected to further progress in upcom- Director of Research and Publications ing quarters, despite its ongoing transformation. [email protected] The metro gained 97,800 jobs in the 12 months ending in (800) 866-1124 x2444 November, with office-using employment accounting for Ron Brock, Jr. 36% of the growth (35,600 positions). The professional Industry Principal, Matrix and business services sector added 23,000 jobs (up 4.5% [email protected] year-over-year in November), while financial activities (480) 663-1149 x2404 gained 12,400 positions and rose 5.1%—the sector’s highest increase across the nation. With New York City diversifying its economy and losing finance jobs, Dallas’ Author financial activities sector is poised for continued growth. Razvan Cimpean With 4.7 million square feet underway at the end of 2019, Senior Associate Editor equal to 1.8% of the existing stock, Dallas was the ninth metro for office construction activity. Developers completed a total of 3.5 million square feet in 2019, a decline of 19.3% from 2018. While the overall office vacancy rate decreased by more than 200 basis points to 17.7% as of December, it was still substantially higher than the national average of 13.4%.

Image by Sean Pavone/iStockphoto.com 2 ECONOMIC SNAPSHOT

➤ Dallas gained 35,600 office-using jobs unemployment rate dropped 30 basis points in the 12 months ending in November. to 3%, slightly below the national average. Growth was led by the professional and business services sector, which expanded ➤ Home Depot is set to hire up to 1,900 by 23,000 positions. workers in the metro as part of its nationwide plan to employ thousands ahead ➤ Office-using jobs accounted for 31% of of the spring season. Available positions the metro’s employment pool—the highest range from part time, full time and seasonal point in the past decade and well above across various departments in the retailer’s the 21.6% national average. Compared to 20-plus locations across Dallas. the figures from November 2018, Dallas’

Office-Using Employment Office-Using Employment

Source: Bureau of Labor Statistics (BLS). Data as of December 2019

Employment Growth by Sector as of December 2019 (Year-Over-Year)

Current Employment Year Change EmCodeploymentEmployment Grow Sectorth by Sector(000) as of De%c eSharember 2Employment019 (Year-Over-Year)% 60 Professional and Business Services 535 19.2% 27,700 5.5% 15 Mining, Logging and Construction 167 Current 6.0% Employment16,700 11.1% Year Change 40 Trade, Transportation and Utilities 560 20.1% 16,300 3.0% Code Employment Sector (000) % Share Employment % 55 Financial Activities 258 9.2% 15,300 6.3% 6560 EducationProfes andsio nHealthal an Servicesd Business Services 332 5311.9%5 13,30019.2% 4.2% 27,700 5.5% 7015 LeisureMining, and HospitalityLogging and Construction 279 16710.0% 8,400 6.0% 3.1% 16,700 11.1% 9040 GovernmentTrade, Transportation and Utilities 312 56011.2% 4,80020.1% 1.6% 16,300 3.0% 30 Manufacturing 186 6.7% 3,600 2.0% 55 Financial Activities 258 9.2% 15,300 6.3% 80 Other Services 88 3.1% 1,900 2.2% 5650 InfEducationormation and Health Services 72 332 2.6% 11.9%400 0.6% 13,300 4.2%

Source:70 BureauLeisure of Labor andStatistics Hospitality (BLS). Data as of December 2019 279 10.0% 8,400 3.1% 90 Government 312 11.2% 4,800 1.6% 30 Manufacturing 186 6.7% 3,600 2.0% 80 Other Services Dallas 88 Office Report |3.1% First Quarter 20201,900 3 2.2% 50 Information 72 2.6% 400 0.6%

Source: Bureau of Labor Statistics (BLS). Data as of December 2019 LEASING | VACANCY

➤ Dallas had a vacancy rate of 17.7% at the Vacancy by Submarket end of 2019, down 210 basis points year- over-year and 430 basis points above the Top Submarkets Vacancy Rate (%) national average. Class A properties were at Denton 4.7% 16.8%, down 160 basis points from the end Ellis County 6.5% of 2018, while Class B space stood at 18.5%, West Fort Worth 7.9% down 260 basis points year-over-year. Lewisville 9.0% South Fort Worth 9.5% ➤ Submarkets with increased development ac- Vacancy by Submarket tivity such as Las Colinas and the Platinum Source: Yardi® Matrix. Data as of January 2020 TopNote: Submarkets Vacancy including subleaseVacancy Rate (%) Corridor North had some of the lowest va- Denton 4.7% cancy rates—at least 570 basis points below VEllisac Countyancy by Submarket 6.5% the metro’s average. West Fort Worth 7.9% Top Submarkets Vacancy Rate (%) Lewisville 9.0% Denton 4.7% SouthAv Fortai lWorthable Propertie 9.5%s Ellis County 6.5% WestSource: Fort Yardi® Worth Matrix. Data as of January 7.9% 2020Square Feet Properties LEASING | LISTINGS Note: Vacancy including sublease LewisvilleTop Submarkets 9.0% Available Available South Fort Worth 9.5% Dallas Central Business 6,160,370 47 Source: Yardi® Matrix. Data as of January 2020 ➤ Dallas office space was listed at an average Note:ADistrictv aVacancyilabl includinge Pro subleaseperties of $27.37 per square foot as of December— Platinum Corridor Square Feet5,054,180Properties 163 roughly 13% below the national average of TopSouth Submarkets Available Available Available Properties $31.58 per square foot. DallasLas Colinas Central Business 6,160,3703,754,71047 192 District Square Feet Properties Top Submarkets Available Available ➤ On average, Class A space was listed at PlatinumWest Dallas Corridor 5,054,1802,950,790163 61 $30.93 per square foot, a 1.1% drop from DallasSouth Central Business 6,160,370 47 DistrictPlatinum Corridor North 2,947,340 136 the end of 2018. Meanwhile, asking rates for Las Colinas 3,754,710 192 PlatinumTotal MCorridorarket 5,054,18039,746163,400 1,466 Class B properties rose 1.7% and stabilized at SouthWest Dallas 2,950,790 61 $23.29 per square foot in December. LasPlatinumSource: Colinas Yardi®Corridor Matrix. North Data3,754,7102,947,340 as of January192136 2020 WestTota lDallas Market 2,950,79039,746,400 611,466 PlatinumSource: Yardi® Corridor Matrix. North Data as2,947,340 of January 2020 136 Total Market 39,746,400 1,466 COWORKING Source:Top Yardi® Co Matrix.wor Datakin asg of TJanuaryena 2020nts (Square Feet) Top Coworking Tenants (Square Feet) Square Coworking Tenant/ No. Squareof Feet ➤ As of December, coworking companies occu- TCoworkingOperatorsop Cowo Tenant/rking T enants (SquareNo. of Locations Feet) Feet Leased pied 3.6 million square feet in Dallas, equal to Operators Locations SquareLeased Regus 44 773,189 1.3% of the existing stock, with some 1 million CoworkingRegus Tenant/ No. 44of Feet 773,189 square feet situated in the Platinum Corridor Operators Locations Leased WeWorkWeWork 10 10 540,383 540,383 North and the Platinum Corridor South. Regus 44 773,189 WORKSUITES 17 378,291 WeWorkWORKSUITES 10 17540,383 378,291 Spaces 5 216,592 ➤ With nearly 800,000 square feet across 45 WORKSUITESSpaces 17 378,2915 216,592 Boxer Workstyle 13 191,635 locations, Regus easily dominates the metro’s Spaces 5 216,592 coworking scene. Most of the company’s Boxer Workstyle 13 191,635 Boxer Workstyle 13 191,635 leased space is located in the Platinum Cor- Source: Yardi® Matrix. Data as of January 2020 ridor South (178,667 square feet) and Las Co- Source:Source: Yardi® Yardi® Matrix. Matrix. Data as Dataof January as of2020 January 2020 linas (123,187 square feet). WeWork follows with 540,383 square feet across 10 locations.

Dallas Office Report | First Quarter 2020 4 Office Completions (Square(Square Feet) Feet) SUPPLY Office Completions 5,000

➤ As of December, developers were working Offi4,000ce Completions (Square Feet) on 30 projects totaling 4.7 million square 5,000 feet, equal to 1.8% of the existing inventory 3,000 and 50 basis points below the national av- 4,000 erage. An additional 42.5 million square feet 3,000 was in the planning and permitting stages, 2,000 accounting for roughly 16% of total stock. 2,000 1,000 ➤ Seventeen office projects, totaling almost 1,0001,000 3.5 million square feet, were delivered in 2019. That’s 20% below 2018’s completions 0 0 0 2017 2018 2019 2020* but still among the nation’s strongest pipe- 20172017 2018 2018 2019 2019 2020* 2020* lines for the 12 months ending in December. Source: Yardi® Matrix. Data as of January 2020 *TotalSource: Year ProjectionsYardi® Matrix. Data as of January 2020 With 2.6 million square feet expected to Source: Yardi® Matrix. Data as of January 2020 come online by the end of 2020, deliver- C*Totalonstruc tYearion Ac tProjectionsivity *Total Year Projections ies are projected to further slow down in Square Feet Under TopCo Submarketsnstruction ActConstructionivity upcoming quarters. PlatinumCons Corridortruc tNorthion Acti1,368,302vity Uptown/Oak Lawn 897,956Square Feet Under ➤ In fall 2019, KDC completed the 1.1 mil- LasTop Colinas Submarkets 731,156SquareConstruction Feet Under SouthTop DallasSubmarkets 470,000 Construction lion-square-foot Pioneer Natural Resources PlanoPlatinum Corridor North 415,896 1,368,302 Platinum Corridor North 1,368,302 Headquarters, the largest project to come TUptown/Oakotal Market Lawn 4,737,008 897,956 online in the metro in 2019. Roughly 50% Source:Uptown/Oak Yardi® Matrix. Data Lawn as of January 2020 897,956 Las Colinas 731,156 of the completed space was located in Las Las Colinas 731,156 Colinas, expanding the submarket’s office CSouthonstru Dallasction Distribution 470,000 South Dallas 470,000 inventory by 4.8%. TopPlano Submarkets % of Inventory 415,896 SouthPlano Dallas 19.2% 415,896 Total Market 4,737,008 Uptown/Oak Lawn 6.9% ➤ The largest project underway as of De- Total Market 4,737,008 LewisvilleSource: Yardi® Matrix. Data as 6.3% of January 2020 cember was Westdale Asset Manage- WestlakeSource: Yardi® Matrix. Data as 6.0% of January 2020 ment’s 500,000-square-foot second phase Platinum Corridor North 5.0% Total Market 1.8% of The Epic. Scheduled for completion in Construction Distribution 2022, the 25-floor tower accounts for 7.4% Source:Con Yardi®st Matrix.ruc Datatio asn of DJanuaryist 2020ribution Top Submarkets % of Inventory of East Dallas’ inventory. SouthTop Submarkets Dallas % of19.2% Inventory ➤ The Platinum Corridor North submarket Uptown/OakSouth Dallas Lawn 19.2%6.9% is also developing. Following the comple- LewisvilleUptown/Oak Lawn 6.3% 6.9% tion of 7.7 million square feet over the past WestlakeLewisville 6.0% 6.3% decade, the region has expanded its office PlatinumWestlake Corridor North 5.0% 6.0% inventory by nearly 30%. A total of 1.5 Platinum Corridor North 5.0% million square feet—or almost one-third Total Market 1.8% Total Market 1.8% of the metro’s new-supply pipeline—was Source: Yardi® Matrix. Data as of January 2020 under construction in the submarket as of Source: Yardi® Matrix. Data as of January 2020 December.

Dallas Office Report | First Quarter 2020 5 Transaction Volume Total Total INVESTMENT TRANSACTIONS Transaction Transaction Top Submarkets Square Feet Volume (000s) Las Colinas 3,347,605 $858,192 ➤ Investment activity remained robust in TPlatinumransactio nCorridor Volume 2,879,688 $652,667 Dallas throughout 2019, with total trans- North Total Total action volume reaching $2.8 billion or an Transaction Transaction Transaction Volume average of $268 per square foot, well TopDallas Submarkets Central Square Feet1,820,899Volume (000s) $420,000 below the national average of $279 per LasBusiness Colinas District 3,347,605Total $858,192Total Transaction Transaction Platinum Corridor 2,879,688 $652,667 square foot. Top Submarkets Square Feet Volume (000s) NorthPlano 2,166,549 $258,485 Las Colinas 3,347,605 $858,192 ➤ In contrast to national trends, investors DallasCentral Central Expressway 1,820,899 686,223$420,000 $176,749 Platinum Corridor 2,879,688 $652,667 focused less on value-add properties, which Business District NorthTotal Market 21,360,628 $3,036,579 accounted for nearly $750 million or 26% of Plano 2,166,549 $258,485 Dallas Central 1,820,899 $420,000 CentralSource: Expressway Yardi® Matrix. Data686,223 as of January$176,749 2020 the metro’s sales volume. In 2018, value-add Business District properties accounted for $836 million or Total Market 21,360,628 $3,036,579 Plano 2,166,549 $258,485 30% of total transactions. As a result, Dal- Source: Yardi® Matrix. Data as of January 2020 Central Expressway 686,223 $176,749 las was the ninth metro for sales volume in Total Market 21,360,628 $3,036,579 2019, up two positions from 2018. Source:Aver aYardi®ge Matrix.Price Data as of January 2020 Average Price ➤ Deals closed in the Las Colinas submarket Avg. Price Avg. Price accounted for almost 30% of the metro’s TopTop Submarkets Submarkets Per Square FootPer Square Foot transaction volume. In Dallas’ largest DallasDallasAver Centralag eCentral Pr Businessice Business $552.39 $552.39 District transaction of 2019, KDC sold the recently District Avg. Price Rockwall County $440.92 completed, 1.1 million-square-foot Pioneer Top Submarkets Per Square Foot LasRockwall Colinas County $338.05 $440.92 Natural Resources Headquarters to PRP Dallas Central Business $552.39 Uptown/OakDistrictLas Colinas Lawn $332.04 $338.05 Real Estate Investment Management for PlatinumRockwall CorridorCounty North $296.96$440.92 $584.2 million or $519.29 per square foot Source:LasUptown/Oak Colinas Yardi® Matrix. Data Lawn as of January 2020$338.05 $332.04 —nearly double the metro’s average. PRP Uptown/OakPlatinum CorridorLawn North $332.04 $296.96 Platinum Corridor North $296.96 partnered with capital investors in Saudi Source: Yardi® Matrix. Data as of January 2020 ISource:nve Yardi®stm Matrix.ent Data A asc tofi Januaryvity 2020 Arabia and New York to acquire the five- building asset, becoming the metro’s top Total Total Transaction Transaction buyer in 2019. Investment Activity TopIn vBuyersestment ASquarectivi Feetty Volume (000s) PRP Real Estate 1,125,000Total $584,200Total ➤ In the Platinum Corridor North, sales vol- Investment Transaction TotalTransaction Total Top Buyers Square Feet Volume (000s) ume amounted to $550 million in 2019. In Management Transaction Transaction one of the most notable transactions of MasaveuPRP Real Estate 1,125,000500,000 $240,000$584,200 InvestmentTop Buyers Square Feet Volume (000s) the year, JDM Partners purchased Legacy JDM Partners 404,482 $186,000 Management Corporate Center from USAA Real Estate StatePRP Teachers Real Estate 260,326 1,125,000$180,000 $584,200 Masaveu 500,000 $240,000 for $186 million. RetirementInvestment System ofJDM Ohio Partners 404,482 $186,000 Management ➤ Masaveu Corp. was the metro’s second- GlenStarState Teachers Properties 1,635,550260,326 $140,000$180,000 Retirement System largest buyer in 2019. The Spain-based Source:Masaveu Yardi® Matrix. Data as of January 2020500,000 $240,000 real estate investment company paid of Ohio $240 million to Civitas Capital Group for GlenStarJDM Partners Properties 1,635,550 404,482$140,000 $186,000 the 500,000-square-foot KPMG Plaza at Source:State Yardi® Teachers Matrix. Data as of January 2020260,326 $180,000 Hall Arts in the Dallas CBD. The deal was Retirement System subject to a $111.7 million loan held by of Ohio Column Financial. GlenStar Properties 1,635,550 $140,000

Source: Yardi® Matrix. Data as of January 2020

Dallas Office Report | First Quarter 2020 6 Brought to you by: NEWS IN THE METRO

Get the latest in local real estate news on CPExecutive.com

Amazon Inks Westdale, Ivanhoe Long-Term Lease Cambridge, Hines

Dalfen Industrial signed Kick Off Development the e-commerce leader to The 16-story building in a 10-year deal for a last- the Deep Ellum neigh- mile facility in East Dallas. borhood is set to receive WELL certification upon its completion next year.

Urban Logistics BH Properties Breaks Ground Buys Office Building

On 1 MSF Project The 60,000-square-foot A private real estate eq- vacant asset is located uity fund advised by Crow on a high-visibility parcel Holdings is also part of adjacent to Highway 75. the venture.

Black Creek Healthcare Breaks Ground Realty Trust On Industrial Project Expands Portfolio

The company’s newest The former owners of the addition is a three-building property, a joint venture development totaling of Heady Investments and 569,000 square feet within Gulf Corp., acquired the Carter Business Park. Plano site in early 2016.

Dallas Office Report | First Quarter 2020 7 DALLAS OFFICE SUBMARKETS

Area # Submarket Area # Submarket Area # Submarket 1 Dallas Central Business District 12 East Dallas 23 North Fort Worth 2 Uptown/Oak Lawn 13 South Dallas 24 East Fort Worth 3 West Dallas 14 Plano 25 Westlake 4 Preston Hollow 15 Las Colinas 26 Denton 5 Central Expressway 16 Lewisville 27 Parker County 6 Lake Highlands 17 Grand Prairie 28 Hood County 7 Telecom Corridor 18 Rockwall County 29 Johnson County 8 North Dallas 19 Arlington 30 Ellis County 9 Northwest Dallas 20 Fort Worth Central Business District 31 Kaufman County 10 Platinum Corridor South 21 South Fort Worth 32 Hunt County 11 Platinum Corridor North 22 West Fort Worth

Dallas Office Report | First Quarter 2020 8 DEFINITIONS & METHODOLOGY

➤ Office using employment is defined as all jobs within the Professional and Business Ser- vices, Financial Activities and Information sectors.

➤ Rents shown in the listing section are reported on a Full Service (FSG) basis. Yardi Matrix subscribers have access to both listed rents and FSG equivalent rents.

➤ Class A and A+/Trophy buildings are combined for reporting purposes.

➤ Yardi Matrix tracks properties with 50,000 square feet or more.

DISCLAIMER

Although every effort is made to ensure the accuracy, timeliness and completeness of the information provided in this publication, the information is provided “AS IS” and Yardi Matrix does not guarantee, warrant, represent or undertake that the information provided is correct, accurate, current or complete. Yardi Matrix is not liable for any loss, claim, or demand arising directly or indirectly from any use or reliance upon the information contained herein.

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Dallas Office Report | First Quarter 2020 9