Long-Term Look at the DFW Office Market
By Steve Triolet, Younger Partners Director of Research
As we close in the end of the second quarter of 2019, I’d like to show a chart which shows a larger, longer term look at the DFW office market and where some key fundamentals stand. Currently the total vacancy rate is at 16.5%, which while not unhealthy, puts the market back to where it was back in 2013. Back in 2013, is really when the DFW office market turned the corner from the previous recession and the market began to experience a boom in net absorption and new construction that resulted in very high rental rate growth over the past six years.
Over the past year and a half, however, net absorption has begun to decline as several large tenants have downsized their real estate footprints as they opt for newer properties with on average, new record high rental rates. These have primarily been technology related companies, but other industries (healthcare, professional services, finance) seem to adopting this trend as well.
As you can see in the chart, this existing supply, along with the construction pipeline (currently just over 7 million square feet), points to the vacancy continuing to rise moderately for the foreseeable future, as net absorption (demand) has been trending down over the past two and half years and is not keeping pace with new construction deliveries.
The key point, which is still unknown, is when the rise in the vacancy will push asking rates down (which remain at all-time highs).