| TEXAS SNAPSHOT, NOVEMBER 2005
Dallas Office Market
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Joe Garrett
Sperry Van Ness
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Currently in the Dallas office market, there is continued development and expansion of new Class A and Class B+ office product, strong absorption in existing, well-located office buildings and upward pressure on rents citywide, according to Joe Garrett, senior investment advisor for Sperry Van Ness in Dallas. “In the strongest submarkets, buildings are converting from full-service rate structures to full-service net of electricity,” Garrett says. “This trend should continue with a select few landlords testing the water on quoting full-service net of electricity and taxes. Philosophically, landlords would like to see the day when triple-net rents are standard in the office market like they are in retail.”
Although the central business district (CBD) vacancy stands at 27.7 percent, it will soon see completion of the 18-story One Victory Park and the $100 million One Arts Plaza. The majority of development, however, is taking place in the West Plano and Frisco submarket, north of the George Bush Turnpike. “This corridor, with the North Dallas Tollway, north of the George Bush Turnpike as its centerline, is the fastest growing, high-income growth sector of the Metroplex,” Garrett says. “The new Class A office buildings and high-end retail that line the Tollway are extending well into North Frisco. New high-end residential and all of its supporting services, such as hospitals and schools, also are developing and are concentrated in this corridor.”
Dallas is home to some of the largest office building developers in the country; yet, no one developer has a dominating presence. No one single tenant is absorbing a majority of the vacancy in Dallas, either. Overall Class A vacancy in Dallas/Ft. Worth stands at 17.2 percent. “However, the healthiest spots in the Metroplex for Class A office space include the Upper Tollway/West Plano at only 3.9 percent vacancy, Preston Center at 9.3 percent vacancy, Uptown Turtle Creek at 13.1 percent vacancy and Frisco/The Colony at 13.4 percent vacancy,” he says.
The range for Class A office space in Dallas runs from the lowest in the West LBJ Corridor at $15 per square foot effective rents to upwards of $30 per square foot in Uptown/Turtle Creek. The total office inventory in the Dallas/Ft. Worth market area is approximately 266.86 million square feet in 4,795 buildings. There are approximately 106.62 million square feet of Class A offices; 123.94 million square feet of Class B offices; and 36.3 million square feet of Class C offices. “At just over 23 percent, Dallas ranks third from the top on the list of U.S. cities with the highest office vacancy rates,” Garrett says. “However, Dallas has a huge propensity to absorb space like no other major city in the country.”
In the near future, the office markets to keep an eye on include Upper Tollway/West Plano, Preston Center, Uptown/Turtle Creek and Frisco. “These are the healthiest submarkets, so we should see a return of new office building construction and, during the next 2 years, close to 5 million square feet will come on line,” Garrett says.
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