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Office Absorption Rises In Q3 But Market Weaker Than 2017

The latest office data for DFW is a bit of a mixed bag. Most fundamentals are improved over a quarter ago, but they still point to an overall slowdown in the market.

Office Absorption Rises In Q3 But Market Weaker Than 2017
Galatyn Commons

The Dallas-Fort Worth office market saw positive net absorption in the third quarter, according to Cushman & Wakefield’s Q3 office report, although it is down for the year due mainly to the loss of XTO Energy, which moved its headquarters to Houston from Downtown Fort Worth.

Dallas absorbed nearly 199K SF for Q3 and 975,506 SF year to date, while Fort Worth finished the quarter with a negative 375,552 SF as XTO moved out.

Absorption is down significantly from 2017, when the DFW region saw a number of large move-ins — 1.5M SF for Q3 and 3.8M SF for the full year.

“The Far North Dallas submarket continues to see steady absorption of new Class-A office product on both the northern and southern reaches,” Cushman & Wakefield Executive Director Scott Hobbs said. “From Legacy/Frisco down to the Platinum Corridor, this submarket epitomizes the depth of the overall DFW office market. Up to this point, as developers and office parks continue to build, the office tenants have continued to arrive.”

About 3.5M SF of new office space is under construction in the Dallas-Fort Worth metro area, down from the 6.3M SF in Q3 2017.

Las Colinas has the most activity, with 1.6M SF under construction, followed by Uptown (654,375 SF) and Legacy/Frisco (510K SF). Construction deliveries year to date total 2.8M SF, with the bulk of that occurring in Las Colinas.

DFW gross asking rents rose slightly to $26.47 from $26.04 per SF in the quarter although asking rates for Class-A declined to $29.89 from $31.10. Class-B vacancy was 18.2%, up from 17.6% in the year-ago quarter. The Uptown submarket had the highest asking rents: $50.11 SF.

Notable occupancies during Q3:

  • NationStar: 244K SF in Lake Vista (Lewisville/Carrollton submarket)
  • NetScout: 145K SF in Watters Creek Park II (Richardson/Plano submarket)
  • Rolex: 136,857 SF at its new HQ in Uptown

Sizable leases in Q3:

  • Nokia: 357,101 SF at Cypress Waters (Las Colinas)
  • Steward Health Care expansion: 133,184 SF at Galatyn Commons (Richardson/Plano)
  • DynCorp: 119K SF at Heritage Commons III (North Fort Worth)
  • Eating Recovery Center: 101,608 SF at Parkside on Legacy (Legacy/Frisco)

Cushman & Wakefield tracks multi-tenant and single-tenant-leased office buildings that are 10K SF and larger and does not include medical office buildings in its numbers. It defines absorption as when the tenant takes occupancy.