Class-A office year-over-year rent growth in Dallas-Fort Worth reached 5% in Q1 2022, the first time growth rates have exceeded the pre-pandemic average.
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The average asking rent for Class-A space was $36.79 in Q1, up from $35.07 at the same time last year, according to Transwestern’s latest office report. The firm points to inflation and a shrinking supply of quality space as driving the increase.
New buildings are leasing in record time, including Weir’s Plaza in the Uptown/Turtle Creek submarket, which was 100% leased six months after delivery, and The Stack in Deep Ellum, which was fully leased nine months after delivery.
“Office rents [in DFW] are reflecting the inflation we see everywhere else in the country,” Andrew Matheny, research manager at Transwestern’s Dallas office, said in an email. “2022 will be the first year since the pandemic that office demand exceeds new supply, so rents will continue rising from here.”
Frisco had the highest rent growth in DFW at 18% year-over-year, which Transwestern attributes to new construction. New projects in West Plano and Frisco are quoting at $55 to $66 per SF, rivaling Dallas’ most expensive submarkets of Uptown/Turtle Creek and Preston Center.
Class-B rent growth is pacing slightly behind Class-A at 4.1% year-over-year. The strongest growth is occurring in the East LBJ and Fort Worth central business district submarkets, at 13.9% and 12.4%, respectively.
One factor driving rent growth is landlords responding to more aggressive property tax assessments. Office properties are reporting increases in taxes and expenses ranging from 5% to more than 15% year-over-year, per Transwestern.
Jon Redmond, vice president of Alliance Tax Advisors, said county appraisal districts are reacting to several high-profile office transactions, including the $600M sale of Downtown Dallas' Trammell Crow Center.
“As a result they are pushing tax values to get more in line with the market value,” he said in an email.
More companies returning to the office drove positive net absorption in Q1, with nearly 1M SF absorbed. Vacancies in Dallas are still tracking above pre-pandemic levels; however, available office space in Fort Worth hit its lowest level in eight years at 10.5%, Transwestern reports.
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