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DFW Office Vacancy Nears 23%

Dallas skyline

DFW’s office vacancy rate rose to 22.7% in the second quarter, the metro’s steepest year-over-year jump in nearly 30 years.

A report from Madison Marquette notes that despite a slowdown in Q2 occupancy losses — 350K SF lost versus 1.6M SF lost in Q1 — the sector notched its fourth straight quarter of negative net absorption, with a 4.8M SF net loss over that time frame.

Added to 2.7M SF of new and renovated space coming on the market over the past 12 months, the losses have driven up DFW’s direct vacancy rate 370 basis points to its highest level since the early 1990s.

That result puts DFW at odds with a national trend toward stabilizing office vacancy rates. A preliminary Q2 analysis released by Moody’s Analytics Thursday pointed to a marginal 0.3% increase in the nationwide vacancy rate, going from 18.2% to 18.5% in what the firm called a notable “lack of stress.”

Class-A properties led the way in Q2 DFW occupancy losses, dropping 402K SF for a year-to-date total of 714K SF lost, according to the Madison Marquette report. Class-B, by contrast, climbed into positive territory, posting 49K SF in absorption for the quarter. Class-B remains down 1.2M SF for the year.

Subleases nosed up 49K SF in Q2, contributing to a 2.5M SF year-over-year leap and a record 9M SF in inventory overall. That number could rise even higher, the report stated, as companies make decisions about return-to-work policies and how they will scale their real estate needs. It could take years to work through the glut, CoStar Group Director of Market Analytics Paul Hendershot told Bisnow in March.

Madison Marquette cited some hopeful signs of slowing deterioration in the office market, including a reduction in occupancy losses, a rise in creative and flexible lease terms, the likely impact of increased activity as the coronavirus pandemic subsides and the continued influx of corporate relocations from outside the area.

Leasing volume, while still down nearly 40% over the five-year quarterly average, rose 20.5% in Q2. The report said renewed interest was reflected in greater tour activity and inquiries, with companies that put off leasing decisions now re-evaluating space needs.

Evidence also suggests increasing numbers of DFW workers are returning to their desks. Just over 50% of office users were back on the job by the end of June, according to data compiled by access and security tech provider Kastle Systems, which tracks keycard swipes at buildings using its entry security systems. The Dallas area had the second-highest percentage of returned workers among the nation’s largest metros, 50.1%, losing by a hair to Austin at 51.2%. Both Texas cities far outpace Kastle’s 10-city average occupancy rate of 32.7%. 

Related Topics: Madison Marquette, Sublease