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Office Absorption Declines; Vacancies Tick Up In Q2 DFW Office Market

Galatyn Commons

The Dallas-Fort Worth office market absorbed 632K SF in the second quarter, down significantly from the year-ago period as vacancy rates ticked up, according to Cushman & Wakefield’s preliminary second-quarter and midyear office market numbers.

The region’s office market saw a large number of move-ins in the second quarter of 2017 — 1.4M SF, more than double this year's rate. Year to date in 2018, the region has absorbed 963K SF of office space, compared to 3M SF in the same period a year ago.

Vacancies at midyear rose to 18.5% from 16% a year ago.

About 4.4M SF of new office space is under construction in Dallas-Fort Worth, down from 6.2M SF underway at midyear 2017. Las Colinas has the most activity with about 2M SF underway, followed by Uptown (654K SF) and Legacy/Frisco (390K SF). 

The overall gross asking rental rates for all classes inched up slightly to $26.41/SF, compared to $26.19/SF at midyear 2017; however, landlords are asking less for Class-A space — $29.75/SF compared to $31.20/SF a year ago.

Uptown Dallas

The highest average Class-A asking rents were in Uptown ($50.28/SF), Preston Center ($44.67) and the Arts District ($39.81). 

“With continued job growth and momentum in the market, we are on pace to see 2M SF to 3M SF of net absorption for the year in the Dallas region,” said Cushman & Wakefield Executive Managing Director Johnny Johnson, a landlord rep.

In June, the Dallas Federal Reserve reported in its Beige Book that the Texas economy was continuing to expand at a solid pace with employment growth widespread across industries. Dallas Fed Economic Policy Advisor and Senior Economist Anil Kumar noted that rising interest rates, labor supply constraints, recently announced tariffs and significant remaining uncertainty regarding trade policy and NAFTA pose some downside risks to the economy.

Cushman & Wakefield Executive Managing Director Rick Hughes, who represents tenants, said companies are committing to only the space they need and using rights of refusal for expansion needs. 

“So, if and when the music ends, it is unlikely that there will be a lot of leased expansion space put back on the market,” he said. “Office leasing for 2018 continues a steady pace toward a very good year — not a great year, but very good.” 

Notable new leases in Q2 included the following:

  • Samsung Electronics America, 216K SF at 6625 Declaration Blvd. (Richardson/Plano).
  • 7-Eleven, 115K SF at 1601 LBJ Freeway (Las Colinas).
  • Genpact, 95K SF at 3300 Renner Road (Richardson/Plano).
  • Darling Ingredients, 95K SF at 5601 North MacArthur Blvd. (Las Colinas).