Demand for Dallas commercial office space is near record highs for the first quarter of 2015. Currently 85 percent of the Dallas offie market is leased and average rental rates are near $22.00 per foot.
The number of large office space transactions doubled in 2014 compared to 2013. This significant increase in leasing activity has significantly reduced the square foot age availability creating demand for new space development.
27 Buildings Under Construction
Far north Dallas construction is 2.3 million square feet and richardson and Plano have 2.1 million square feet. The total construction for the Dallas Fort Worth area is presently 8.8 million square feet of office space. DFW hasn’t seen this much office space activity since the early eighties.
As a veteran of the eighties I see that the Dallas commercial office space market is significantly different from what we experienced at that time. In particular during the eighties the majority of the building that were being build were speculative. Some had an anchor tenant but most didn’t. There were many see through office buildings in Uptown, Las Colinas, Central Expressway and North Dallas.
Today we are seeing many building’s leased before they are build. A few examples are Toyota Motors and Federal Express in Plano, Dallas Cowboys in Frisco and State Farm and Raytheon Corporation in Richardson’s Telecom Corridor. These are very large projects that are leased before the dirt was turned to start construction and none of them will be see through.
What Should An Office Tenant Do?
From an office tenant’s perspective, I like to see reasonable aggression from developers so that there is a little excess space available in the office market. This creates a competitive situation that a tenant may use to their advantage in the lease negotiation. However we will not see this excess for a few years.
Of all the Dallas commercial office space markets the majority of development is presently underway in Frisco. There is presently over 4 million square feet of office space either under construction or planned to break ground within the next three months. From a tenant’s prospective this should create a little more competitive office leasing environment if the amount of leasing activity in the Far North Dallas office market slows down to a normal pace.
This slowdown may not occur for a while because we are presently experiencing positive economic news and corporate relocations t0 DFW that are driving the record demand for office space in the Dallas area. Eventually this demand will subside but I don’t see this happening within the next eighteen months. So if the recent announcement of the 27 new buildings are presently sixty percent leased it is possible that the present demand may absorb the additional forty percent and DFW will avoid the overbuilding that it experience in the eighties.
So if you are looking for space, this isn’t the best time because we are experiencing a significant increase in demand. The good news for tenants is that every thing is cyclical and this landlord’s market will eventually change. Strategically you should be managing your releasing decisions to reduce your exposure. It may also be wise to consider if you are making the most efficient use of your office space.
A Good Stratagies For The Next Two Years
Over the next two years I see the demand for Dallas commercial office space to remain strong but after that the national economy will begin to weaken. If you need office space the better lease terms may be found in subleases at this time and wait patiently for the market to change. This downturn will put downward pressure on rental rates and this will be the beginning of the time to look at a longer term lease to lock in lower rental rates.