Dallas Office Market
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RESEARCH 1Q 2020 DALLAS OFFICE MARKET MARKET AT A GLANCE CURRENT CONDITIONS The Dallas Fort Worth office market continues to see moderate movement through the first quarter. Population and employment growth Rental rates are still on the incline, as the average rental rate for Dallas Fort Worth creeps above $27.00. continue to drive demand for office space. Vacancy rates have seen little fluctuation over the last year and continue to hover around 17%. Dallas Fort Worth is still a hotbed for corporate expansions as Direct leasing accounted for most of the leasing activity during the first companies continue to grow and flock to the metroplex. quarter at approximately 2.4 million square feet. Sublease activity Covid-19 hits the metroplex and begins to shake up the local accounted for approximately 262,000 square feet, accounting for a small economy. amount of the market’s overall activity. Since first quarter 2019, over 6 million square feet has been delivered to MARKET ANALYSIS the Dallas Fort Worth office market. The Far North Dallas and Uptown/ Turtle Creek submarkets account for most of the space under Asking Rent AnD VAcancy construction in the metroplex. $27 24% RENTAL RATES & VACANCY REMAIN RELATIVELY $24 22% STABLE In the fourth quarter the average asking rate was $26.51/SF, during the $21 20% first quarter of 2020 that increased slightly to $27.03. Submarkets with a $18 18% relatively high number of new development such as Uptown/Turtle Creek and Far North Dallas are currently outflanking the market with rental $15 16% rates in the mid $30.00 to low $40.00 per square foot range. The 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 suburbs have profited the most from enormous corporate shifts, but the Average Asking Rent (Price/SF) Vacancy (%) CBD and Uptown/Turtle Creek have pulled in a significant number of migrations and corporate growth too. A handful of submarkets Net Absorption (SF, Millions) experienced increases in sublease rates including Dallas CBD and Las Colinas in the first quarter. The average market sublease rate is $23.31/ 2.0 SF, which is a slight increase from the previous quarter in which it was 1.5 $22.70/SF. 1.0 0.5 At 17.3%, the overall vacancy rate has increased very minimally since 0.0 fourth quarter when it was 17.0%. Most submarkets in the Dallas Fort -0.5 Worth market experienced slight changes in vacancy. The Ft. Worth CBD 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20 submarket saw one of the biggest changes decreasing from 16.1% in the fourth quarter to 12.1% in the first quarter of 2020. This was due to an MARKET SUMMARY increase in leasing activity. Current Prior YeAr Ago 12 Month Quarter Quarter PerioD Forecast During the first quarter, 707 transactions occurred in the metroplex Total Inventory 313.6 MSF 312.9MSF 306.9 MSF é totaling approximately 2.4 million square feet. The number of Availability Rate 20.2% 20.1% 20.0% ê transactions decreased in the first quarter from 758 in the previous Quarterly Net Absorption -560,676 2,026,481 1,513,691 é quarter. Uptown/Turtle Creek, Far North Dallas and Las Colinas were $27.03 $26.51 $26.21 some of most sought out submarkets in the first quarter, as rental rates Average Asking Rent é in these submarkets ascended over the quarter. New inventory in these Under Construction 7.7 MSF 7.3 MSF 8.8 MSF é submarkets is driving interest and demand; thus, creating an increase in Deliveries 8 12 10 é rents. © NEWMARK KNIGHT FRANK | 2020 RESEARCH | 1 1Q 2020 DALLAS OFFICE MARKET RELOCATIONS & EXPANSIONS SALES & INVESTMENTS Dallas Fort Worth continues to be at the epicenter of corporate The first quarter of 2020 got off to a fast start with a few of high- relocations and expansions. Some of the key attributes that make profile sale transactions. Most notable was the sale of The Union Dallas Fort Worth attractive to companies are a profoundly talented located in the Uptown Turtle Creek submarket. The Class A office work force, relatively low price of doing business, and incentives building sold for $350M or approximately $731/SF. This transaction provided by the State of Texas. Relocation activity appeared to slow takes the title as being the priciest office property in Dallas per square down during the first quarter of 2020. Some of the most notable foot. The Union was purchased by the South Korean firm KB Financial. relocations and expansions this quarter include Appen and USAA. In the neighboring CBD submarket, 750 North Saint Paul changed Appen, an Australian tech company who specializes in the artificial hands in the first quarter of 2020 as well. The Class A office building intelligence field announced they plan to open their first Texas office in sold for $85M or approximately $311/SF. The 22-story office tower Dallas. One of the main reasons Appen chose Dallas was because of was about 85% leased at the time of sale and traded at a 5.5% cap its highly talented workforce. Appen signed a long-term lease for rate. The buyer was the global investment firm Heitman. 50,000 square feet at 3033 W. President George Bush Turnpike known as The Apex in the Plano office submarket. The space was “plug in CONSTRUCTION PIPELINE play” as it is the former space another tech company. The move by Across the market, roughly 675,000 square feet has delivered during Appen is supposed to bring around 300 new jobs to the metroplex. the first quarter. Most of the space under construction is in the Far North Dallas and Uptown/Turtle Creek submarkets. These are two of During the first quarter, USAA announced it will be taking the top office submarkets in Dallas Fort Worth, flaunting some of the approximately 125,000 square feet of office space at 5543 Legacy most noteworthy leases and highest rents in the metro. More than half Drive located in the Upper Tollway/West Plano submarket. The national of the submarket's inventory is class A & B buildings and of that, many insurance company will not move into their space until the summer of buildings are viewed as prize assets. 2020. This expansion allows USAA to stay near where they already occupy over 230,000 square feet at 5601 Legacy Drive also located in the Upper/Tollway West Plano submarket. AVERAGE ASKING RENT BY SUBMARKET VACANCY BY SUBMARKET AverAge Asking Rent ($/SF) VAcancy RAte (%) Current 12 Month Current 12 Month Quarter 1Q2019 Change Quarter 1Q2019 Change Uptown/Turtle Creek $41.37/SF $39.62/SF é Northeast Fort Worth 15.5% 29.8% ê Preston Center $40.00/SF $38.49/SF é Stemmons Fwy 22.6% 21.9% é 24.8% 23.3% Fort Worth CBD $29.15/SF $28.66/SF é Dallas CBD é 21.3% 20.8% Central Expressway $31.58/SF $29.77/SF é CBD Total é 16.3% 17.6% Far North Dallas $31.30/SF $29.40/SF é Richardson/Plano é © NEWMARK KNIGHT FRANK | 2020 RESEARCH | 2 1Q 2020 DALLAS OFFICE MARKET ECONOMIC INDICATORS COVID-19 HITS DALLAS FORT WORTH Dallas Fort Worth economic growth continued in January according to The Covid-19 virus pandemic has spread across the world and has hit the Federal Reserve Bank of Dallas. Payroll employment expanded, the Dallas Fort Worth area also. As of March, Dallas County officials unemployment stayed near record lows, and the Dallas and Fort Worth have made the tough decision to close all restaurants, bars, and business-cycle indexes rose further. Homebuilding activity soared in businesses. All large gatherings in public places have been canceled January, and housing market indicators point to moderate price as well, such as worship facilities and concerts. All public schools appreciation and stable affordability in fourth quarter 2019. Dallas Fort have been closed indefinitely as well. It is certain the regional economy Worth employment rose an annualized 2.0 percent in January, down is going to feel some momentary torment as we adjust to these means from 4.6 percent in December. Payroll expansion was 1.7 percent in to help moderate the spread of this virus. Understanding the long-term Dallas, while employment grew 2.7 percent in Fort Worth. effect of this virus regarding the Dallas Fort Worth market is just Unemployment in Dallas and Fort Worth held steady at 3.1 percent. something that will take time but will be predicated on the virus being contained and people being able to resume daily and routine activities Expansion in the Dallas and Fort Worth business-cycle indexes Coworking companies have been hit hard by Covid-19 pandemic as continued in January, supported in part by healthy job growth. The they are slashing salaries and letting workers go. With a business Dallas index rose an annualized 4.7 percent, slower than December’s model based around bringing office workers closer together and rate. Growth in the Fort Worth index was solid at 4.3 percent. Year over sharing space they will struggle to make it through this time period. year in January, the Dallas index rose 5.8 percent, and the Fort Worth With workers being asked an encouraged to stay home the coworking index was up 4.2 percent. Growth in both indexes remained higher than companies will continue to suffer. Jobless claims have soared over 3 their long-term averages. Homebuilding remained active in the million to a record high. Some of the hardest hit industries have been metroplex, buoyed by housing demand. Dallas Fort Worth single-family the travel, hotel, and restaurant/bar industries.