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Increased Growth Forecast for D/FW Office Market

by Scott Buie, Dallas, January 2015

 

The robust office real estate market in the Dallas/Fort Worth Metroplex shows no signs of slowing down.

 

A healthy supply of new development, positive leasing demand, and strong capital market activity will continue for the foreseeable future, according to the CBRE 2015 market forecast event, "Moving Up the Risk Curve."

 

Office Building Boom

 

The total office square footage under construction in D/FW hit a 14-year high in the third quarter of 2014. New office development exceeded 7 million square feet. The bulk of the building activity is concentrated in the suburban submarkets of Richardson, Plano, and Far North Dallas. Approximately 63.4% of the total square footage in the pipeline is already pre-leased.

 

Investment activity has remained at high levels with healthy sales volume across all asset classes. The CBRE Marketview Report says it's the continuation of the perfect storm with investor demand and attractive financing being met by asset pricing supported by strong fundamentals.

 

Office-using Employment Soars

 

More than 120,800 new jobs were added in D/FW during fiscal 2014. The professional and business services sector led all other industries with 44,150 jobs added.

 

Moody's Analytics forecasts 3.6% growth in 2015 and 4% growth in 2016 for the Dallas metro area. It predicts 3.9% growth this year and 3.7% next year for the Fort Worth area.

 

Rents Rise

 

Asking rents continue to go up with the overall market average rising to $20.41 per square foot. Class A rents increased at an especially strong pace, rising to $26.39 per sq. ft. All office classes recorded an increase in lease rates for the last 12 months leading to an overall market growth rate of 10.9%.

 

The numbers look good for office vacancies and absorption as well. D/FW experienced its 17th consecutive quarter of positive net absorption. Vacancies declined to 18.2%, six months after the vacancy rate dipped below 18% for the first time since 2008. Demand is strong among several submarkets, especially the Central Business District, Far North Dallas, and the Mid-Cities.

 

Expect Higher Valuations

 

The strong market fundamentals will lead to higher property valuations for many office properties in 2015 and beyond. Property owners and managers must be vigilant in managing property tax increases to maintain a competitive edge in the marketplace.

 

Don’t waste time; start early. Have a consultant in place before 2015 values are issued to allow sufficient time to build a strong case for a reduction.