Completions Again Top Demand in Dallas Office Market; Fort Worth Performance Strengthens
(December 20, 1999) – Completions in the Dallas office market continue to run ahead of demand. During the last six months of 1999, 3.6 million square feet of new multitenant space was delivered in metropolitan Dallas. Demand for multitenant space totaled less than half that amount, with 1.6 million square feet of space absorbed.
Build-to-suit corporate facilities again took a big bite out of overall absorption potential. Single-user buildings delivered in the last half of 1999 totaled nearly 1.6 million square feet.
“Overall demand remains very strong,” said M/PF Research president Ron Witten, “but more and more large space users are opting for private campus settings instead of traditional multitenant projects. Total office space absorption in Dallas during calendar 1999 reached its highest level since 1986. However, we’re still struggling to fill up all of the new multitenant buildings coming on stream because about half of 1999’s demand went to single-tenant projects.”
Occupancy in Dallas multitenant space stood at 80% as of December 1999. Occupancy dipped 3 points during the past year and now is 6 points off the peak established just before new space started to pour into the market during early 1998. Quoted rents for new leases in the Dallas office market average $21.73/sq ft (full-service rates). Rents have been essentially flat since the middle of 1998. Class A buildings now command rents averaging $24.74/sq ft.
“The good news is that market conditions are in the process of stabilizing,” said Witten. “Multitenant space scheduled for delivery in year 2000 drops more than three-fourths from 1999’s aggressive slate of completions, and that reduced level of new supply falls well within recent demand capacity. Single-tenant users will continue to capture much of total demand, however, since another 1.8 million square feet of build-to-suit space is already under construction.”
Office market conditions are considerably tighter in Fort Worth than in Dallas, because Tarrant County has not experienced significant new construction. Multitenant new supply delivered in the last six months of 1999 was limited to a single building of 134,000 square feet, versus net demand for 588,000 square feet of multitenant space. Single users absorbed another 356,000 square feet in build-to-suit space.
Occupancy in the Fort Worth office market now has reached 88%, up 2 points during the past year. Quoted rents for new leases grew 4.7% in the past year to $17.87/sq ft. Rates for Class A space average $22.61/sq ft.
“With so much attention focused on the question of whether the Dallas office market is becoming overbuilt, Fort Worth has managed to post a solid performance that’s been largely unheralded,” said Witten.
By far D/FW’s total office space demand leader in recent months was the North Irving submarket. Absorption during July-December 1999 shot to more than 1.5 million square feet in single-user space, including large buildings for GTE, Sterling Commerce, Reltec and Cigna. Multitenant demand in North Irving totaled 193,600 square feet. Some of North Irving’s success occurred at the expense of the neighboring Las Colinas Urban Center submarket. Cigna and Sterling Commerce both left large blocks of multitenant space in the Urban Center to move into single-tenant projects in North Irving. The Urban Center also suffered the move-out of Quaker State. On net, tenants left 353,000 square feet of space in the Urban Center during 1999’s last half.
addition to North Irving, other key demand centers during the last half of 1999 included Plano/Frisco, downtown Dallas and downtown Fort Worth. The downtown markets were helphed by large individual leases. Omnicom accounted for nearly half of the 462,900 square feet absorbed in the Dallas CBD, while Americredit and HUD contributed more than four-fifths of the Fort Worth CBD’s demand for 356,700 square feet.