A new report shows an overall positive evaluation of the region and its office real estate sector.
The latest Office Insight from JLL looks at the first quarter and shows that the Dallas market continues to outperform the rest of the nation—despite a decrease in leasing activity. Also, DFW continues to lead the nation in job and population growth, which is partly attributable to the region’s diversified economy.
According to the report:
- Job growth for Dallas-Fort Worth grew by 5.9% year-over-year through January, nearly double the national growth rate.
- Sublease availability increased by 1.1% quarter-over-quarter to 9.1 million square feet, compared to a 10% increase nationally during the same timeframe.
- Dallas continues to be among the top markets nationally for new construction, with 832,970 square feet delivered in the first quarter of this year.
- Vacancy is expected to drop by 6.1% as over 4 million square feet of obsolete office space across multiple assets will be taken off the market for conversions.
Tenant demand strong while leasing activity decreased
The company said office tenant demand continues to be strong and marked an increase over the past quarter. As of March, JLL Dallas Agency Leasing recorded 48 tenants actively looking for space over 20,000 square feet, spanning some 4.4 million square feet, up 12.8% quarter over quarter. Some 40% of tenant demand is for spaces in the 20,000- to 50,000-square-foot range, which shows tenants’ continued evaluation of space and efficiency of footprint.
Despite continued tenant demand, Dallas leasing activity fell 27.1% year over year, mostly because of a delay in large-scale activity caused by economic uncertainty, the firm said.
Of leases signed in the first quarter this year, 95.1% were under 15,000 square feet, which JLL said is a consistent trend in the market with a slight but steady increase since 2019.
Sublease availability increased by 1.1% quarter over quarter to 9.1 million square feet, compared to a 10% increase nationally within the same timeframe.
Far North Dallas continues to hold the highest concentration of Dallas sublease availability at nearly 30% of the market, JLL said. It said a notable removal from the sublease market in the quarter was Reata Pharmaceutical’s 327,400 square-foot build-to-suit being pulled off the market following its first FDA approval. Spec suite activity continues to increase in tenant favorability due to high-quality finishes and ease of occupancy.
The Dallas Morning News reported last week that Reata shifted gears to occupy its completed building in Plano’s Legacy business park after initially deciding to stay in its existing location and sublease the new 20-story high-rise that was completed in 2021.
Reata broke ground on the 327,000-square-foot tower on Legacy Drive in 2019 and planned to move into the building when it was finished. The decision to move in came after delays caused by the pandemic and several drug approvals.
Top market for new construction
JLL said that Dallas continues to be among the nation’s top markets for new construction, with 832,970 square feet delivered in Q1 of this year, and plans to deliver 3.9 million square feet during rest of 2023. At Home leased and occupied 100% of the newly-delivered 9000 Cypress Waters.
Also, IBP is 23% leased, showing continued interest in high-quality office space. JLL said that regardless of the large-scale development pipeline, 55% of first quarter delivered space already is leased or under contract. That’s in line with the national average, the company said.
JLL said that in the Dallas CBD the conversion of underperforming office products to partial multifamily is an ongoing trend. It said that once conversions begin, vacancy may drop by 6.1% as over 4 million square feet of obsolete office space across multiple assets will go off the market.
Along with decreased vacancy, JLL said that the revitalization of the urban core is expected to be fueled by population growth of over 55% along with increased amenities through retail and restaurants to attract residents and companies alike.
JLL Research has expanded its tracked inventory to include corporate owner-occupied properties as part of a continuous data quality improvement process. Buildings owned by government, educational, and medical entities remain outside of statistical inventory, JLL said.
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