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OFFICE
Dallas/Fort Worth Metro Area Q2/19
Developers Remain Active as Corporations
Continue to Capitalize on North Texas Office 2019 Outlook
Newfound interest in Fort Worth headlines rising demand for urban CONSTRUCTION:
offices. An infusion of white-collar jobs and a business-friendly envi-
Development climbs more than 25 per-
ronment will support strong leasing activity this year despite more than
cent relative to a year ago as 8.1 million
8 million square feet of new space coming to fruition. The metro’s urban
cores will drive the continued improvement of the Dallas/Fort Worth 8.1 MILLION SQ. FT.
will be completed
square feet is completed. This total still
sits more than 2.3 million square feet
office market as availability in these areas is squeezed tighter. Downtown
below the cyclical high posted in 2017.
Fort Worth is attracting an increasing number of businesses as this area
and its amenities become more compatible with young professionals,
boosting the talent pool. In addition, Dallas’ core remains a primary ben-
VACANCY:
eficiary of booming economic growth witnessed across North Texas over
the past several years. Strong net absorption will keep vacancy
harnessed at 18.9 percent this year.
Corporate interest in the Metroplex continues to grow. The new cor- 0 BASIS POINT
change in vacancy
During the previous two years, the rating
porate campuses of American Airlines and Pioneer Natural Resources inched up 20 and 70 basis points.
make up more than a third of this year’s deliveries. AmerisourceBergen
and Charles Schwab will also establish new offices in the Metroplex,
adding to the list of high-profile companies building a broad footprint in
the Dallas/Fort Worth area. Quickly growing northern suburbs comprise
RENTS:
much of the new square footage in 2019, with cities like Coppell, Plano The average asking rent remains relative-
ly affordable compared with the nation’s
and Westlake leading the way. Here, numerous office buildings in the
150,000- to 250,000-square-foot range will be completed this year, hous- 2.2% INCREASE other major metros as the figure rises to
ing corporations as well as younger companies seeking an upgrade from in asking rents $25.89 per square foot this year.
their current locations.
Investment Trends
• Northern parts of the Metroplex remained highly targeted by private
Local Office Yield Trends
and institutional investors. Addison and Plano had no shortage of
h buyers for their diverse pool of listings, mostly ranging from 50,000 to
12.0% 200,000 square feet. The majority of these properties were stabilized,
netting initial yields in the upper-6 to lower-7 percent band, in line with
10.5% the market average.
Average Rate
9.0%
• Investors focused heavily on Las Colinas as the area’s proximity to DFW
International Airport and central location between the metro’s primary
7.5% cities make it a desired neighborhood for corporations and other
high-profile businesses. Cap rates in the mid-7 percent band attracted
6.0% a mixed bag of investors; however, institutional capital consumed a
* 01 03 05 07 09 11 13 15 17 19* sizable portion of transaction velocity.
Sources: CoStar$400
Group, Inc.; Real Capital Analytics 30%
Year-over-Y
$300 15%
Employment Trends
1Q19 – 12-Month Trend
Local Office Yield Trends
Employment Growth Office-Using Emp. Growth EMPLOYMENT
6% 12.0% 2.9% increase in total employment Y-O-Y
Year-over-Year Change
3% 10.5% • Roughly 106,000 workers were staffed over the past year, a third
of which consisted of office-using professions. An influx of tech
Average Rate
0% 9.0% and management-related positions supported a gain of 25,900
employees to professional and business services — the most of
-3% 7.5% any sector.
Year-over-Year Growth
Square Feet (millions)
6
$300 • Development significantly slowed down15%from the previous year
when 10.6 million square feet was completed. Highly amenitized
0
$200 luxury space continues to drive construction.
0%
-6
• Inner-ring neighborhoods registered the most new construction
$100 -15%
since last March as the Far North Dallas and Uptown/Turtle
-12 $0
Creek submarkets each added over 1.0 million
-30%
square feet.
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19**
square feet of space was absorbed. One year earlier, the measure
12%
rose 20 basis points.
* Forecast
Source: CoStar Group, Inc.
Demographic Highlights
2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*
12.0% Urban
2019 Office-Using Job growth Population of Age 25+ U.S. Average 32.0%
3% ed a 20-basis-point
10.5% drop the average cap rate to 6.8 percent.
Southwest Dallas 7.0% -60 $20.86 -1.9%
Average Rate
-3% Outlook: While7.5% value-add properties will remain sparse, adequate levels
South Fort Worth 10.2% 40 $24.44 1.4%
of fully leased stabilized assets will keep Dallas/Fort Worth an active
-6% investment market.
6.0%
Preston Center 09 1012.5%
11 12 -140
13 14 $37.70
15 16 17 -0.6%
18 19* 01 03 05 07 09 11 13 15 17 19*
$400 30%
Year-over-Year Growth
Square Feet (millions)
* Includes submarkets with more than 100,000 square feet of ** Trailing 12 months through 1Q19 over previous time period
inventory Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
24%
1Q19* Office Acquisitions CAPITAL MARKETS
By Buyer Type
Cross-Border, By DAVID G. SHILLINGTON, President,
11.6%
Marcus & Millichap Capital Corporation
Other, 6.0%
Equity Fund • Ongoing trade concerns weigh on growth outlook; Fed plots next
& Institutions, 32.9% steps. Amid rising trade tensions between the U.S. and China and
slowing global growth, the outlook has turned more cautious. Mar-
ket volatility, along with a flight to safety trade, has flattened the
yield curve dramatically, with the 10-Year Treasury trading below
Private, 45.1%
Listed/REITs, 4.4% 2.2 percent. This has pushed the broader yield curve into inversion,
a closely watched precursor to a potential recession. Meanwhile,
many measures of the domestic economy remain buoyant, includ-
Office Mortgage Originations ing continued job and wage growth, historically low unemployment
By Lender and muted inflationary pressure. These conditions have prompted
a dichotomy, with Federal Reserve officials signaling more accom-
100%
modative policies. The impending end of quantitative tightening in
Percent of Dollar Volume
September, coupled with potential cuts to the Fed funds rate in the
75% Nat'l Bank/Int'l Bank
Reg'l/Local Bank second half of the year, highlight the shift in Fed policy. As a result,
50% CMBS long-term interest rates are likely to remain subdued, with Fed
Financial/Insurance policy leaning toward accommodation.
Pvt/Other
25%