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Class B Tumbles

Dallas-Ft. Worth
Class B Tumbles
John Bowles, Ed Pachecano, Chris Lipscomb
DFW's office market posted nearly 258k SF  of negative absorption during the 1Q '10, marking the fourth consecutive quarter  of space losses, says Grubb & Ellis. Although Class A and C properties posted occupancy gains of 363k SF and 132k SF, respectively, the office-leasing market felt the drag from the Class B  sector's 753k SF of negative absorption. The flight to quality  may be part of the reason, says John Bowles Co.'s Chris Lipscomb (right, with JBC prez J ohn Bowles and managing director Ed Pachecano, seated). Chris says the Class A Galleria Office Towers inked 30k SF of new deals earlier this year and is seeing lots of opportunities for tenants who want to upgrade.
Dallas skyline
There's also pressure on landlords to make concessions or lower rents, and now strong Class B tenants are able to upgrade to Class A, Chris says. Plus some small- to medium-sized businesses are simply closing up shop and leaving Class B space vacant. Grubb & Ellis reports the vacancy rate grew 60 bps to 23.5%  during Q1, reaching its highest level in more than four years. While rising vacancy rates have become burdensome to landlords, tenant negotiating power has strengthened. Many companies are using the sluggish market to upgrade space requirements, lock in lower rents, and negotiate longer-lease terms.