The Federal Reserve Bank of Dallas released its economic outlook for the Texas economy in December. I read the Texas economic report report last night and thought thought if the prognostications of the report are accurate we will see an impact upon Dallas office rental rates. We will also see positive events for the overall Dallas office market.
During the first half of 2016 Texas experienced a slowdown in economic activity according to the Federal Reserve. While we still had a .8 percent job growth in the first half of 2016. The good news is Texas experienced a 2.1% increase in job growth in the second half of the year.
Some of these new workers will be placed into Dallas office space and increase the Dallas office rental rates. While reading the report I looked at the areas that experienced the most growth in employment. Many of the areas contained professions that traditionally use office space. Some of the traditional office users growth rates are significant financial services +6.1%, professional and business services +13.6%, Information services +1.7%.
Another positive for the overall Texas economy is the stabilization of oil. Now that oil is hovering around $50 per barrel Texas has seen an increase in rig counts. In mat 0f 2016 there were 173 rigs operating. In the later part of 2016 there were 303 rigs. It is also worth noting that the first three quarters of 2016 saw a dramatic reduction in oil and gas support jobs. The last quarter of the year realized a 1.7% increase in employment intros sector.
Because of the positive absorption of Dallas office space the reported vacancy rate is 17%. This rate is 2.4% below the long term historical average vacancy rate for Dallas. Vacancy rates in Class A and B office buildings is much lower creating upward pressure on Dallas office rental rates.
Texas is experiencing two factors that are applying pressure on growth. The first is upward pressure on wages due to a lack of qualified workforce. This is prevalent in Dallas. Also, the strong Dollar is having an impact on the goods and services we are exporting out of the United Staes.
Based upon what I am seeing in the Dallas office market the economy is robust. Many firms are actively growing and demand for Dallas office space remains high. I expect 2017 to be a strong year for the Dallas office market and Dallas office rental rates will remain strong.