DFW Office Market Faces Major Disconnect

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The Dallas-Fort Worth area office market is facing a “historic supply-demand disconnect.”

Office construction has slowed in most major metros as employers right-size their office spaces to support more hybrid and remote work schedules. However, despite shifting work trends, tighter lending standards from banks, and record-high vacancy rates, DFW continues to push ahead with more office construction.

“Dallas-Fort Worth stands out with office workers representing 30% of the entire working population, showcasing the area’s strong inclination towards office-centric professions,” Yardi Kube communication specialist Madeline Fagaras told The Dallas Express in an email.

DFW currently leads the nation with more than 5.2 million square feet of office space under construction, outpacing the 5.1 million square feet in Austin, the 4.9 million square feet in Manhattan, and the 4 million square feet in Seattle, according to data from CBRE, a global commercial real estate services firm.

While over 50% of white-collar workers in DFW have returned to the office, that is not enough to prop up the local office market over the long run. About 26% of DFW office space currently remains vacant, with total availability around 30%, or about 71 million square feet, according to Avison Young’s Q4 2023 market report.

“Unless leasing activity picks up meaningfully, it will be difficult to bring down the current high vacancy and availability rates to more normal levels,” said Avison Young in the report.

Overall leasing activity in 2023 totaled nearly 12 million square feet, which is around 5.1% of the available office inventory in the region. Therefore, leasing activity as a percentage of inventory fell to its lowest level since the Great Recession in 2009.

Despite the mass influx of people moving to the region and the creation of 53,600 new office jobs in 2023, net absorption was at a negative 1.64 million square feet, according to CBRE.

Although office demand is currently in a slump, DFW’s strong economy and growing employment base are expected to lead to a general increase in leasing activity.

“DFW continues to reinforce its position as a strategic national logistics hub due to its central location, accessibility, and an affordable alternative to other major markets,” said Greg Langston, principal and managing director for Avison Young’s Dallas office.

“We expect market vacancy to begin to move lower later in 2024 and into 2025 as the notably slower development pipeline lets this new product lease-up,” he said.

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