The Downtown Dallas office market is plagued with one of the highest vacancy rates in the nation at 28%, but the submarket has been transforming in recent years as a live-work-play environment.

In the third quarter, the Dallas Central Business District office submarket had 89K SF of positive net absorption, with an additional 163K SF under construction, according to data provided to Bisnow by CBRE Research. Average asking rates are about $25.49/SF, a 118-basis point decrease from Q2.

The market has 26.2M SF of rentable area with nearly 21M SF of that being Class-A — about one-fifth of the entire Class-A inventory in DFW and more than any other submarket.

“While Downtown Dallas is seeing a major transformation in hotels and residential, the fact remains that Downtown Dallas has one of the highest office vacancy rates in the nation,” CBRE Advisory and Transaction Services Vice Chairman Phil Puckett said. “We are still suffering from the hangover of all the office space constructed in the mid-1980s.”

Still, the future looks bright as the submarket works to transform into a 24/7 live/work/play environment. About 11,000 residents now live in the Dallas Central Business District, and 70,000 residents live within a 2.5-mile radius, according to Downtown Dallas Inc. The submarket scores high for its quality of life, workforce, and proximity to Dallas/Fort Worth International Airport, Dallas Love Field and the International Inland Port of Dallas.

The influx of residents has also spurred retail growth, with more than 20 new restaurants coming to the CBD in recent years.

Office redevelopment is also underway. Todd Interests is redeveloping the historic 41K SF Masonic Temple on Harwood Street in Downtown Dallas. The building, which has been vacant for about a decade, will become office space.

“The good news for Downtown, in my opinion, is I do see a future wave of tenant activity occurring mainly on the north side of Downtown due to the low vacancy of Uptown and the inability to find larger blocks of office space in Uptown,” Puckett said.

Landlords on the north side of the Central Business District have also committed to building new garages to accommodate parking needs, which should help spur tenant interest.

“Parking is a very important factor, particularly for law firms, when looking for office space,” he said. “I do think 2019 will be a good year for Downtown, but we do have a lot of available space to fill. I remain bullish on the Downtown market as great things continue to happen in our CBD.”