Office space demand in Dallas is at one of the highest levels in the history of the city. The need for new space is driving the development of new office product in Uptown, Plano, Frisco, Richardson and other markets in Dallas. In 2015 4.7 million square feet of office space was absorbed in the Dallas Fort Worth market.
The positive absorption of office space is due to corporate relocations to Dallas and expansion of existing office tenants that are growing because of the good economy. Roughly fifty percent of the office space absorbed is related expansion of businesses in Dallas.
There is a downside to this positive economy. Because of the office space demand in Dallas many tenants are experiencing much higher rental rates when their office leases renew. I am presently working with a client that signed a lease two years ago and they are renewing their lease. The new rental rate being quoted by the landlord is twenty six percent higher than the rate negotiated two years ago.
This leaves many Dallas office tenants looking for new space that will have lower rental rates. If this trend continues I expect to see these tenants migrate to the LBJ Corridor where there are still office buildings that have not experienced the dramatic increase in rental rates.
Dallas is seeing more office buildings under construction which will eventually increase the available inventory of office locations in Dallas. It has been recently announced that Trammel Crow and Met Life are building a twenty story 500,000 square foot office building along Klyde Warren Park in the Dallas CBD. This building will be a AAA class office location and demand higher rental rates. There are many office locations throughout the Dallas area that are being build that are of the same status.
This created a delima for the office tenant looking for a $16 to $20 per foot office space. The newer buildings that are coming online will be in the $30 – $40 per rentable square foot level. This does not decrease the rental rates for tenant that are looking for an office to maintain the lower rate of their expiring office lease.
Office space demand in Dallas for this year will most likely remain relatively strong. There are many new buildings that will be completed this year and tenants will relocate from their present location to a new building like Jackson Walker did in 2015 when the relocated from Renaissance Tower to KMPG Plaza at Hall Arts. Obviously this will create opportunities as tenants vacate second generation buildings for new locations.
Office Space Demand In Dallas Creates Opportunities
One way to keep the rates lower for tenants that are looking for bargains to to find office subleases that become available if a tenant relocates to a new building while there is still some lease term remaining at their former location. These opportunities are available but the lease term is usually shorter and the subtenant must realize that the good rate they have in their sublease will evaporate when the master lease expires and the subtenant will need to negotiate a new lease directly with then landlord.
Office space demand in Dallas is very strong. However, if you are looking for a deal they can still be found. You just need to know where to look and be realistic. The office market in 2016 for Dallas is a landlord’s market.