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D/FW Office Market Bounces Back

by Scott Buie, Dallas, October 2012

The recovery in the Dallas-Fort Worth office market continues. Office occupancy is at its highest level in over three years, according to PM Realty Group.

 

This is a trend that assessors are closely monitoring. As a result, owners and landlords should expect aggressive revaluations for 2013.

 

Occupancies Rise

 

The D/FW office market showed consistent growth for the 12 months ending May 2012 due to several factors, including the region's:

 

  • Well-educated labor force

  • Diverse industry base

  • Strong population growth

  • Central location

  • Positive business environment

 

The Metroplex posted a net absorption of 587,164 square feet of office space during the second quarter; just over one million square feet was absorbed year-to-date. As an example of the evident growth, the Allen/McKinney submarket experienced a double-digit increase in its year-over-year occupancy rate. (See table.)

 

PM Realty Group predicts continued occupancy improvements through the rest of 2012 and further anticipates a landlord-favorable market during the next 12 months for submarkets such as Far North Dallas, Uptown/Turtle Creek, Preston Center and Fort Worth's Central Business District.

 

Rents Begin to Increase

 

Within the past 12 months, asking rents inched up slightly but still remain 6.8% below the cyclical peak recorded four years ago.

 

Landlords raised Class A rents in the most pursued submarkets. The table below shows the largest annual increases.

 

Market

% Increase

Frisco/The Colony

6.6

Fort Worth CBD

6.5

Upper Tollway/West Plano

4.9

Preston Center

4.2

Las Colinas

4.1

 

In the year ahead, leasing velocity should remain active. Numerous tenants are evaluating potential expansions, relocations, and renewals well in advance of their lease expirations.

 

2013 Reappraisal

 

Increasing rental and occupancy rates, combined with persistent low cap rates are sure to lead the appraisal district to increase values on Metroplex office buildings in 2013. Owners must diligently look for any offsetting factors that counter the effects of these trends.

 

Rather than applying a general set of parameters across all properties in a submarket, rent concessions, deferred maintenance, and locational factors must be considered, and adequately accounted for, on a property-by-property basis.

 

 

D/FW Office Submarket Occupancy Rankings

 

Occupancy Rate (%)

Year-Over-Year % Change

1. Frisco/The Colony

93.3

4.4

2. Fort Worth CBD

90.9

1.6

3. South Fort Worth

90.7

2.8

4. Preston Center

88.9

1.2

5. Upper Tollway/West Plano

88.7

1.2

6. North/Northeast Fort Worth

88.1

0.8

7. Arlington/Mansfield

86.1

1.0

8. East/South Dallas

85.7

0.3

9. Uptown/Turtle Creek

85.6

4.7

10. Allen/McKinney

85.0

11.2

11. Lewisville/Denton

84.4

1.8

12. Plano

82.9

4.7

13. Central Expressway

82.7

-0.3

14. Mid Cities

82.2

1.7

15. Stemmons

79.5

0.4

16. Quorum/Bent Tree

79.4

2.5

17. Las Colinas

78.4

3.9

18. Richardson

73.6

5.9

19. East LBJ

72.9

-1.3

20. West LBJ

72.4

-3.3

21. Dallas CBD

68.9

-0.3

 

Source: PM Realty Group