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Life Is Good For Class-A Office Landlords In Premium Dallas Locations

Downtown Dallas is seeing commercial activity pick up heading into the new year.

Demand for Dallas office space showed no signs of waning in the first quarter, and landlords operating Class-A office buildings in Uptown, Downtown Dallas and Far North Dallas are the greatest beneficiaries of office demand, reports from CBRE and JLL said. 

“The two poles of the Dallas market — Uptown/Downtown and Far North Dallas continue to show strong activity and rental rate growth,” JLL said.

Total Dallas market absorption reached 1.1M SF in the first quarter, according to JLL data. 

This was the eighth quarter in a row that Dallas office absorption topped 1M SF; it was buoyed once again by job growth, which rose by an annualized 3.1% in February. 

Most of the Q1 office absorption was driven by Class-A office product in all of the Dallas submarkets. Class-A absorption hit 823K SF in Dallas, while Class-B properties recorded 354K SF of net absorption, JLL said. 

At the same time, office product under development continued to fall from 7.2M SF two years ago to 3.9M SF at the end of Q1, a 46% decline, JLL reported. The slowdown is tied to the completion of large corporate campuses, the commercial real estate firm said. 

“As the cycle wanes, developers are more cautious to get caught at the precipice of the downturn. However, leasing for new product in Uptown, Las Colinas, and Legacy is still strong, and could encourage several projects to break ground spec after a lull in development,” JLL said. 

Commercial real estate firm CBRE took a broader look at the market, releasing information for the entire DFW office market. 

CBRE reported 752K SF in absorption throughout DFW in the first quarter, with most of the movement in Class-A and Class-B office product. Activity in Class-C cooled down after a strong 2018.

Across DFW, 4.1M SF of office space is under construction, the firm said.

The total vacancy rate for DFW hit 20.7% in Q1, according to CBRE, while the average asking rate hovered at $25.01/SF. 

The biggest tenant move-in in Q1 was AmerisourceBergen Specialty Group, which is now occupying a 300K SF building completed by Billingsley Co. in Carrollton in early March, CBRE said.