Dallas Office Insight

Dallas The health, policy, economic and financial disruption stemming from the COVID-19 pandemic continues to Q2 2020 create a fluid and evolving environment for the office market. Although data from Q2 is providing greater clarity about conditions and the short-term real estate outlook, there remains significant uncertainty Office Insight surrounding market dynamics and long-term trajectories and, as a result, we will continue to monitor fundamentals closely as the situation unfolds. Please feel free to contact us if we can assist. After the great pause, uncertainty clouds the future for Dallas and the broader U.S. office market • Stay-at-home orders to contain the spread of the coronavirus Fundamentals Forecast throughout the country limited real estate activity this quarter YTD net absorption -822,833 s.f. ▼ • Dallas saw its second consecutive negative quarter of net absorption Under construction 4,246,935 s.f. ▼ and total vacancy was up 1.7% from the prior quarter, at 21.4% Total vacancy 21.4% ▲ • In prior recessions, DFW was later to enter and quicker to recover than Sublease vacancy 2,931,732 s.f. ▲ most, but the unique nature of this downturn makes the outlook Direct asking rent $29.21 p.s.f. ▶ uncertain and many industry sectors are under unusual pressure Sublease asking rent $23.53 p.s.f. ▶ Concessions Increasing ▲ The stay-at-home orders issued in the Dallas region at the end of Q1 2020 Supply and demand (s.f.) Net absorption caused a major disruption in Dallas real estate activity, extending into mid-Q2. Deliveries Most office occupiers shifted employees to working from home, and the 5,000,000 4,000,000 ensuing uncertainty about the health care and economic situations caused 3,000,000 tenants to delay making real estate decisions. As the Dallas economy started 2,000,000 to open back up in mid-May and June, tour activity increased especially for 1,000,000 spaces that would accommodate more social distancing such as first floor 0 -1,000,000 spaces, or suburban locations, but was still below pre-shutdown levels, and -2,000,000 many employees continued to work from home. 2016 2017 2018 2019 YTD 2020 There were a few bright spots in the Dallas office market in Q2. Class A absorption was positive, at 118,000 square feet, while direct Class A Total vacancy absorption was even higher at 265,000 square feet. Las Colinas was the 26% submarket with the most absorption, at 121,000 square feet for the quarter. 24% Negative absorption was driven primarily by smaller move-outs, and sublease absorption (-200,000 square feet) was twice that of direct absorption (-98,000 22% square feet). Far North Dallas and the U.S. 75 Corridor, previously hotspots for 20% activity, saw the largest occupancy decreases. 18% 16% While asking rental rates are down slightly from the prior quarter, they remain 2006 2008 2010 2012 2014 2016 2018 2020 up 3.0% from Q2 2019. In prior downturns asking rents stayed stable or increased for several quarters after the economy turned downward from its Average asking rent ($ p.s.f.) Direct peak. Some increases in concessions are beginning to be seen, but deal flow Sublease has been light. We expect effective rates to decline in the next 6-12 months. $35 $30 Outlook $25 Until there is more clarity on the health care situation, short-term renewals $20 may continue to drive most of Dallas’ leasing activity. Dallas still has a large $15 construction pipeline, so expect overall vacancy to increase, but demand for $10 new and higher quality space may increase in response to health concerns. 2006 2008 2010 2012 2014 2016 2018 2020 For more information, contact: Kari Beets | [email protected] © 2020 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof. Dallas | Q2 2020 JLL Research Report Office Statistics Total net YTD total net YTD total net Average YTD Under Inventory Direct vacancy Total Class absorption absorption absorption (% direct asking Completions Development (s.f.) (%) vacancy (%) (s.f.) (s.f.) of stock) rent ($ p.s.f.) (s.f.) (s.f.) Uptown/Oak Lawn Totals 12,776,649 -91,699 -189,302 -1.5% 14.9% 16.1% $50.02 200,000 982,007 Dallas CBD Totals 27,116,074 63,226 -202,293 -0.7% 24.0% 26.9% $29.36 0 798,230 Downtown Dallas Totals 39,892,723 -28,473 -391,595 -1.0% 21.1% 23.4% $34.32 200,000 1,780,237 East Dallas Totals 990,608 -3,468 10,242 1.0% 17.0% 17.0% $16.25 0 323,293 Far North Dallas Totals 46,401,127 -114,075 124,551 0.3% 19.3% 21.7% $31.36 268,000 1,569,153 Grand Prairie/South Irving Totals 697,179 -2,498 17,929 2.6% 15.8% 17.7% $17.02 0 0 Las Colinas Totals 34,446,409 121,049 -263,498 -0.8% 18.4% 19.3% $27.61 650,000 0 LBJ Freeway Totals 18,599,064 -73,100 -44,611 -0.2% 21.9% 22.8% $22.81 0 0 Lewisville/Denton Totals 2,881,197 -21,258 -19,794 -0.7% 7.5% 7.5% $22.24 22,340 244,000 North Central Expressway Totals 10,869,958 -71,089 -155,421 -1.4% 15.4% 16.1% $33.59 49,800 30,252 South Dallas Totals 1,896,061 -9,901 -43,391 -2.3% 27.6% 27.7% $23.35 0 0 US 75 Corridor Totals 22,736,627 -82,637 -22,540 0.0% 20.8% 21.8% $25.71 0 300,000 Preston Center Totals 3,887,461 -63,264 -5,408 -0.1% 11.3% 12.1% $43.13 0 0 Stemmons Freeway Totals 7,792,641 39,517 -29,297 -0.4% 31.0% 31.5% $17.77 0 0 Suburban Dallas Totals 151,198,332 -280,724 -431,238 -0.3% 19.6% 20.9% $27.51 990,140 2,466,698 Dallas Totals 191,091,055 -309,197 -822,833 -0.4% 19.9% 21.4% $29.21 1,190,140 4,246,935 Uptown/Oak Lawn A 11,174,617 -52,800 -135,740 -1.2% 14.2% 15.3% $51.97 200,000 954,538 Dallas CBD A 22,345,444 109,833 -156,631 -0.7% 24.0% 27.5% $30.51 0 728,230 Downtown Dallas A 33,520,061 57,033 -292,371 -0.9% 20.8% 23.4% $35.84 200,000 1,682,768 East Dallas A 0 0 0 0.0% 0.0% 0.0% $0.00 0 285,893 Far North Dallas A 31,291,187 29,206 277,528 0.9% 19.9% 22.7% $35.73 220,000 1,569,153 Grand Prairie/South Irving A 116,527 0 0 0.0% 0.0% 0.0% $0.00 0 0 Las Colinas A 19,792,954 285,935 -38,298 -0.2% 18.7% 19.7% $31.40 650,000 0 LBJ Freeway A 10,096,963 -59,333 27,959 0.3% 18.5% 20.1% $26.98 0 0 Lewisville/Denton A 202,964 0 0 0.0% 0.0% 0.0% $0.00 0 220,000 North Central Expressway A 7,289,910 -22,978 -139,299 -1.9% 15.6% 16.0% $35.03 0 0 South Dallas A 280,592 0 0 0.0% 6.9% 6.9% $20.64 0 0 US 75 Corridor A 12,274,801 -86,749 69,084 0.6% 21.6% 22.7% $28.90 0 300,000 Preston Center A 3,262,382 -48,068 -6,800 -0.2% 11.4% 12.3% $44.95 0 0 Stemmons Freeway A 2,857,120 -36,568 -88,784 -3.1% 22.3% 23.4% $19.04 0 0 Suburban Dallas A 87,465,400 61,445 101,390 0.1% 19.0% 20.7% $32.06 870,000 2,375,046 Dallas A 120,985,461 118,478 -190,981 -0.2% 19.5% 21.4% $33.32 1,070,000 4,057,814 Uptown/Oak Lawn B 1,602,032 -38,899 -53,562 -3.3% 19.6% 21.2% $36.05 0 27,469 Dallas CBD B 4,770,630 -46,607 -45,662 -1.0% 23.9% 24.4% $23.39 0 70,000 Downtown Dallas B 6,372,662 -85,506 -99,224 -1.6% 22.8% 23.6% $25.84 0 97,469 East Dallas B 990,608 -3,468 10,242 1.0% 17.0% 17.0% $16.25 0 37,400 Far North Dallas B 15,109,940 -143,281 -152,977 -1.0% 18.1% 19.7% $22.60 48,000 0 Grand Prairie/South Irving B 580,652 -2,498 17,929 3.1% 19.0% 21.2% $17.02 0 0 Las Colinas B 14,653,455 -164,886 -225,200 -1.5% 18.0% 18.9% $22.67 0 0 LBJ Freeway B 8,502,101 -13,767 -72,570 -0.9% 25.8% 25.9% $19.23 0 0 Lewisville/Denton B 2,678,233 -21,258 -19,794 -0.7% 8.0% 8.0% $22.24 22,340 24,000 North Central Expressway B 3,580,048 -48,111 -16,122 -0.5% 14.8% 16.1% $30.56 49,800 30,252 South Dallas B 1,615,469 -9,901 -43,391 -2.7% 31.2% 31.4% $23.46 0 0 US 75 Corridor B 10,461,826 4,112 -91,624 -0.6% 19.9% 20.7% $20.98 0 0 Preston Center B 625,079 -15,196 1,392 0.2% 10.7% 11.1% $30.68 0 0 Stemmons Freeway B 4,935,521 76,085 59,487 1.2% 36.1% 36.1% $17.06 0 0 Suburban Dallas B 63,732,932 -342,169 -532,628 -0.8% 20.4% 21.3% $21.57 120,140 91,652 Dallas B 70,105,594 -427,675 -631,852 -0.9% 20.7% 21.5% $22.02 120,140 189,121.

Load more