dallas/ft.worth office market report€¦ · 16/04/2019 · more than seven years into the current...

DALLAS/FT.WORTH OFFICE MARKET REPORTF I R S T Q U A R T E R 2 0 1 9

DALLAS/FT. WORTHOFFICE MARKETQ1

2019

WADE BOWLINPresident, Property ServicesCentral [email protected]

KURT CHERRYExecutive Vice PresidentCentral [email protected]

ARIEL GUERREROSenior Vice President, [email protected]

FOR INFORMATION:

TABLE OF CONTENTS

Source: U.S. Bureau of Labor Statistics; Employment Data as of February 2019 All Employees, in Thousands

E C O N O M I C O V E R V I E W

The economic expansion in the Dallas-Fort Worth-Arlington metropolitan statistical area (MSA) continued to strengthen during the first quarter of 2019 as companies have shown no interest in contracting payrolls. The ever more diverse region has recorded eight consecutive years of employment gains, averaging a 2.9% growth rate, and began 2019 at a solid pace for its ninth. The DFW MSA added a net 102,500 new jobs over the prior 12 months ending in February, representing a 2.8% annual increase. The industries driving annual job growth were the Professional & Business Services (22,800 jobs); the Trade, Transportation & Utilities (21,400 jobs); and the Leisure & Hospitality (18,800 jobs) sectors. Information was the only industry sector that experienced a net job loss. As a result of the robust job growth, DFW’s unemployment rate ended February at 3.6%, outperforming the state and national unemployment rates, both at 3.8%.

DFW’s comparative ease of national access with close proximity to a port city, its organic source of educated workforce talent, along with pro-business economic policies in Texas combine to give the metro area a competitive advantage for attracting investment. Additionally, the diverse mix of business types add somewhat of a buffer if a recession were to take place. However, barring a labor shortage or a disruption in the global economy, the North Texas economy can expect to continue its expansion through 2019. The employment outlook for Dallas-Fort Worth remains strong with job growth forecasted to average approximately 72,000 jobs per year through 2022, according to Moody’s Analytics.

ECONOMIC OVERVIEW ...........................................2

OFFICE MARKET ASSESSMENT .............................3

NET ABSORPTION & VACANCY ................................4

RENTAL RATES & LEASING ACTIVITY ......................5

CONSTRUCTION .....................................................6

SUBMARKET STATISTICS & RECENT DEALS ...........7

THE TEAM ...............................................................8

EMPLOYMENT GROWTH BY SECTOR

-5%

-3%

-1%

1%

3%

5%

-125

-75

-25

25

75

125

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Thou

sand

s

Employment Trends

Jobs Added Annual % Change

EMPLOYMENT TRENDS

3.3%

7.1K

JOBS ADDED

MINING2.4%

6.6K

JOBS ADDED

MANUF2.8%

21.4K

JOBS ADDED

TRADE,TRANS 3.1%

(2.6K)

JOBS LOST

INFO2.5%

7.6K

JOBS ADDED

FINANCIAL

3.8%

22.8K

JOBS ADDED

PROF,SRVCS 2.6%

11.7K

JOBS ADDED

EDUC.5.0%

18.8K

JOBS ADDED

LEISURE3.1%

3.7K

JOBS ADDED

OTHER1.2%

5.4K

JOBS ADDED

GOV’T

DALLAS/FT. WORTHOFFICE MARKET Q1

2019

O F F I C E M A R K E T A S S E S S M E N T

The DFW office market kicked off 2019 by posting a net 1.16 million SF of direct absorption during the first quarter of 2019, following a solid performance with nearly 3.8 million SF of occupancy gains in 2018. This marks the 30th consecutive quarter of occupancy gains, helping to bring the trailing 12-month total to nearly 4.0 million SF of direct net absorption. The Class A sector was largely responsible for the quarterly gains with 1.35 million SF absorbed, bringing the trailing 12-month total up to 3.6 million SF. As a result, Class A direct vacancy rates slipped by 10 basis points to 19.4% during the quarter but have moved up 80 basis points over the past year, as construction deliveries and the introduction of second-generation space have outpaced leasing demand.

Leasing activity, which has generally been driven by large leases in desirable submarkets during the current expansion period, has begun seeping into the medium-sized range. Although many large requirements still exist in the market, approximately 89% of the leases executed during the quarter exceeding 15,000 SF were for spaces smaller than 50,000 SF. The most noteworthy lease transactions during the first quarter include Hana & Katten Muchin Rosenman LLP (123K SF combined SF at PwC Tower), Co-Op Financial Services (108K SF at Campus at CentrePort), DXC Technology (100K SF at 3400 CityLine), Cognizant (82K SF at Dominion Legacy Office Center), and VCE Company (57K SF at Collins Crossing).

In addition to the solid leasing gains in competitive office product, DFW has experienced a steady stream of corporate-owned office development and office users opting to purchase their own facilities in lieu of signing lease commitments. Tenants electing to move into space that they own since the beginning of 2018 include: Liberty Mutual (1.1M SF), Southwest Airlines (414K SF), Abbott Laboratories (325K SF), USAA (150K SF), among others. The largest owner-user construction projects still underway belong to American Airlines (1.7M SF), Charles Schwab (500K SF), Baylor Scott & White (300K SF), The Trade Group (200K SF), with several more on deck.

F O R E C A S T

• With a number of large high-quality availabilities diminishing and record-high rental rates, lease negotiations will remain in favor of landlords within the most desirable submarkets during the oncoming quarters.

• Building owners focusing upon significant capital improvement programs to enhance their buildings and amenities will continue to outperform undercapitalized assets.

• Corporate relocations and expansions will continue to strengthen the office market fundamentals, as the metro area’s business-friendly environment, lower cost of doing business, and well-educated labor force attract more companies to the Metroplex.

ECONOMIC INDICATORS

Direct Vacancy

Direct Net Absorption(T-12 mos)

Under Construction

Direct Asking Rents $26.19

4.9M SF

3.9M SF

18.3%

CurrentQuarter

Change from Previous Quarter Year

12-monthForecast

10%12%14%16%18%20%22%24%26%28%30%

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

'05 '06 '07 '08 '09 '10 '11 '12 '13 14 '15 '16 '17 '18 '19 '20

in T

hous

ands

of S

F

Office Market Trends

Direct Net Absorption CompletionsDirect Vacancy % Direct Availability %

OFFICE MARKET TRENDS MARKET TREND INDICATORS

OFFICE JOB GROWTH

JOB GROWTHT-12 MOS

THRU FEB 2019

29.7%OF TOTAL GROWTH

2.8%Y-O-Y

30.4K

102.5K


2019

-500

0

500

1,000

1,500

2,000

'14 '15 '16 '17 '18 '19

In T

hous

ands

of S

F

Direct Net Absorption

Class A Class B

14%

16%

18%

20%

22%

24%

'14 '15 '16 '17 '18 '19

Direct Vacancy and Availability

Class A Direct Available Class B Direct Available

Class A Direct Vacancy Class B Direct Vacancy

N E T A B S O R P T I O N & V A C A N C Y

• The Class A property sector continues to outperform the broader market with nearly 1.4M SF of direct space absorbed during the first quarter of 2019, bringing the trailing 12 months total up to just over 2.6M SF.

• The largest quarterly gains in the Class A sector included AmerisourceBergen taking possession of their 300K SF build-to-suit in Upper Tollway/West Plano, Brinker International’s 216K SF occupancy of their build-to-suit in Las Colinas, and Samsung Telecommunications taking 216K SF at Legacy Central 4 in Plano.

• The Class A sector also experienced a couple of large vacancies involving Samsung vacating 156K SF at Lookout Park I in Richardson, and PwC giving back 161K SF at 2001 Ross Ave in the Dallas CBD.

• Class A direct vacancy rates have declined by 10 basis points to 19.4% since hitting a cyclical high during the fourth quarter of 2018 and are nearing their 5-year average as signed leases have commenced.

• Class A direct availability rates declined by 70 basis points during the first quarter to 22.1%, and have managed to decline by 50 basis points over the prior 12 months.

• The Class B sector, which has been impacted by the flight to quality trend, saw direct vacancy climb by 10 basis points during the quarter to 17.5%, but has managed to experience a reduction of 70 basis points over the prior 12 months.

• The largest Class B quarterly vacancies resulted from a Xerox lease expiring on 256K SF in Lewisville, a State Farm’s lease expiration on 135K SF in Las Colinas, and Workforce Solutions vacating 69K SF in South Irving.

• However, the Class B sector witnessed a couple of large move-ins to help offset the aforementioned losses as Lockheed Martin took occupancy of 60K SF at 15100 FAA Blvd and Dallas County moved into 55K SF at 1300 W Mockingbird Ln.

More than seven years into the current real estate cycle, the DFW office market fundamentals remain strong as organic job growth and corporate relocations continue to fuel the leasing market. Even though yearly direct net absorption has slowed since hitting its peak in 2015, leasing activity and demand continue to show a healthy performance.”

KURT CHERRYExecutive Vice President, Dallas Regional OfficeCentral Division

ABSORPTION/VACANCY TRENDS

DIRECT NET ABSORPTION

DIRECT VACANCY AND AVAILABILITY

CLASS A DIRECT NET ABSORPTION

CLASS B DIRECT NET ABSORPTION

DIRECT VACANCY

CLASS A

CLASS A

CLASS B

CLASS B

T-12 MOS

T-12 MOS

3.6 MSF

333KSF

19.4%

21.2% 20.1%

30.6M 22.2M

17.5%

DIRECT AVAILABLE


2019

R E N T A L R A T E S & L E A S I N G A C T I V I T Y

• Class A full-service asking rental rates increased by $0.21 to $29.65 per SF during the quarter, their eighth quarterly increase since the beginning of 2017, and have improved by $0.69 or 2.4% over the prior 12 months. Class A rental rates have been at record levels, and currently exceed their pre-recession peak in mid-2008 by 20.4%.

• Weighted average Class B asking rents climbed by $0.23 to $21.67 per SF during the quarter to reach an all-time high and have appreciated by $0.38 or 1.8% over the prior 12 months.

• Annual rent growth occurred in 15 of 21 submarkets in the DFW Metroplex as leasing activity persists and developers continue to deliver new competitive product. However, there are still leasing opportunities for value-conscious tenants in submarkets with elevated vacancy rates, such as the Stemmons and LBJ Freeways, Dallas CBD, Mid Cities and North/Northeast Fort Worth.

• Landlords with well-positioned assets in the most desirable submarkets have been able to retain negotiating power and command higher Class A rental rates. The highest annual Class A rent growth occurred in East/South Dallas (30.2%), North/Northeast Ft Worth (19.8%), Plano (10.6%), and West LBJ (6.0%).

• The trailing-12 month volume of Class A leasing activity declined to approximately 11.8M SF and remains in line with its 5-year average. On the other hand, Class B annual leasing velocity of 10.7M SF, currently outpaces its 5-year average by 19.8%.

• Since tenants are demanding modern and efficient space in amenitized submarkets, the newer and higher-quality buildings will continue to be the preferred destination. The flight-to-quality trend will pressure building owners with inefficient product, especially located in non-premier submarkets, to offer concessions or invest capital into their assets.

0%

1%

2%

3%

4%

5%

6%

7%

8%

'14 '15 '16 '17 '18 '19

Rental Rates Year-over-Year % Change, FS Gross

Class A Class B

6,000

8,000

10,000

12,000

14,000

'14 '15 '16 '17 '18 19

In T

hous

ands

of S

F

Direct Leasing ActivityRolling 12-Months

Class A Class B

Although DFW has historically been a boom-or-bust market, the healthy fundamentals indicate we still have some runway left in this cycle. Historically, speculative development has been the proverbial emergency brake on growth, but recent spec buildings constructed in the premier submarkets have leased up quickly as tenants are willing to pay more for the best space configurations and amenity-rich locations.

KURT CHERRYExecutive Vice President, Dallas Regional Office

Central Division

RENTS/LEASING ACTIVITY

RENTAL RATESY-O-Y % change, FS GRS

TOTAL LEASING ACTIVITYRolling 12-Months

RENT GROWTH (Y-O-Y)

SUBLEASE AVAILABILITY

DIRECT LEASING ACTIVITY

2.8%

6.0 MSF

22.8 MSF

11.9%

SINCE PEAKIN 4Q18

7.8%

ABOVE 5-YR. AVG.

T-12 MOS


2019

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

'14 '15 '16 '17 '18 '19

In T

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ands

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F

Construction Pipeline

Under Construction Delivered

SIGNIFICANT PROJECTS UNDER CONSTRUCTION/RENOVATION

PROJECT NAME SIZE (SF) SUBMARKET MAJOR TENANT% PRE- LEASED DEVELOPER

TARGET DELIVERY

American Airlines * 1,700,000 Mid Cities American Airlines 100% Crescent Real Estate 4Q 2019Pioneer ** 1,125,000 Las Colinas Pioneer 100% KDC 3Q 2019Charles Schwab * 500,000 Mid Cities Charles Schwab 100% Hillwood Properties 2Q 2019Baylor Scott & White * 300,000 East/South Dallas Baylor Scott & White 100% KDC 3Q 2020USCIS Building ** 259,947 Las Colinas USCIS 100% Trammell Crow 1Q 20203201 Olympus Blvd ** 250,000 Las Colinas Nokia Siemens 100% Billingsley Co. 2Q 20193200 Olympus Blvd 250,000 Las Colinas N/A 0% Billingsley Co. 4Q 2019The Realm at Castle Hills 248,387 Lewisville N/A 31% Bright Realty LLC 3Q 2019Harwood No. 10 231,098 Uptown/Turtle Creek CyrusOne 26% Harwood International 2Q 2019Headquarters II 220,000 Upper Tollway/W Plano N/A 0% Heady Investments 1Q 2020The Offices Two 210,000 Frisco/The Colony N/A 0% VanTrust Real Estate 3Q 2019* Corporate-owned ** Build-to-suit † Under Renovation Note: Corporate-owned office buildings excluded from competitive statistics

C O N S T R U C T I O N

• The DFW office development pipeline, which contracted each quarter in 2018, expanded by 13.6% to 4.9 million SF during the first quarter (excluding corporate-owned projects). Developers appear to be hesitant breaking ground on new product prior to securing lease commitments as the competitive projects underway are currently 51.6% pre-leased.

• The largest concentration of office construction and renovation activity is found in Las Colinas (2.5M SF), Uptown/Turtle Creek (431K SF), and Upper Tollway/West Plano (372K SF), which account for a combined 66.4% of DFW’s competitive office development pipeline.

• Developers completed construction on 886K SF of competitive office space during the quarter, highlighted by Billingsley’s 300K SF build-to-suit project for AmerisourceBergen Specialty Group in Upper Tollway/West Plano. Other notable deliveries include The Epic Deep Ellum (295K SF in East Dallas) and The Luminary (160K SF in Dallas CBD).

• The largest construction projects breaking ground during the quarter included Trammell Crow Company’s 260K SF Class A built-to-suit for US Citizen and Immigration Services in Las Colinas and Billingsley’s 100% speculative Class A buildings totaling 400K SF in the Cypress Waters development. Delivery for these construction projects are scheduled for early-2020.

• In addition to the 4.9M SF of competitive office construction currently underway, there is 3.0M SF of corporate-owned office projects under construction, with the majority expected to deliver by the end of 2019. The most notable of these projects include the American Airlines Corporate Campus (1.7M SF) and Charles Schwab Corporate Campus (500K SF) both in Mid Cities, Baylor Scott & White Health (200K SF) in East Dallas, and The Trade Group Headquarters (200K SF) in Las Colinas.

• With over 21.6M SF of competitive space delivered over the past five years, new construction remains a valid alternative for tenants willing to pay a premium for high quality office buildings that offer the latest workplace trends as they seek to retain and attract the most skilled employees.

CONSTRUCTION

CONSTRUCTION PIPELINE

SIGNIFICANT PROJECTS UNDER CONSTRUCTION

4.9 MSF

2.9 MSF

4.9 MSF

OFFICE SPACE UNDER CONSTRUCTION52.0% PRE-LEASED

NEW OFFICE BREAKING GROUNDT-12 MOS

FORECASTED SUPPLY IN2019


2019

S U B M A R K E T S T A T I S T I C SUpdated 4/16/19

SubmarketsTotal

Inventory SF Direct Sublease Direct

AvailabilityDirect

Vacancy Current Qtr. T-12 MonthsCompletions Current Qtr

Under Construction Class A Class B

Dallas CBD 27,469,420 7,439,964 844,522 27.1% 23.7% 36,379 632,061 160,046 322,590 $27.23 $20.62

Uptown / Turtle Creek 12,651,419 2,090,070 374,403 16.5% 13.2% 44,640 557,932 34,762 431,098 $41.47 $32.33

Preston Center 4,405,427 582,787 80,505 13.2% 10.2% (39,920) 102,834 - 118,000 $39.79 $30.85

Central Expy 11,595,635 1,898,918 183,525 16.4% 12.0% 167,539 226,264 38,848 0 $31.46 $26.09

Quorum / Bent Tree 20,599,679 4,907,922 454,937 23.8% 20.3% 109,523 297,727 - 0 $30.26 $20.62

Upper Tollway / West Plano 22,776,760 4,813,656 945,322 21.1% 17.4% 480,489 614,909 300,000 372,300 $34.25 $26.89

West LBJ 4,309,913 980,673 152,470 22.8% 19.2% (66,439) (53,861) - 0 $22.27 $18.34

East LBJ 16,160,973 3,765,563 386,862 23.3% 23.3% 109,449 (115,500) - 0 $27.77 $19.69

Las Colinas 32,734,388 6,751,200 1,232,581 20.6% 16.5% 19,364 (212,627) 30,000 2,454,347 $30.93 $22.79

Stemmons 11,047,809 3,030,753 83,970 27.4% 25.8% 157,311 74,799 - 0 $19.45 $15.41

Richardson 17,407,046 3,176,013 289,297 18.2% 17.1% (10,930) 349,889 - 90,000 $26.53 $20.11

Allen / McKinney 3,712,431 529,344 59,915 14.3% 15.4% (4,515) 224,568 - 0 $29.82 $23.52

Plano 4,968,672 1,614,185 38,288 32.5% 30.5% 240,825 52,464 - 49,200 $29.37 $21.76

Frisco / The Colony 6,027,589 992,260 253,089 16.5% 13.7% 27,158 404,421 - 300,507 $33.86 $27.23

East / South Dallas 7,575,479 1,287,349 10,469 17.0% 17.5% 74,815 (11,295) 294,820 65,890 $39.52 $21.12

Arlington / Mansfield 6,645,525 878,487 48,064 13.2% 9.7% 72,837 71,453 - 0 $22.44 $20.45

Mid Cities 10,308,096 2,675,906 172,386 26.0% 24.2% 109,391 346,435 - 107,752 $26.92 $20.65

Ft. Worth CBD 8,614,315 1,448,717 53,054 16.8% 16.6% (61,376) (27,136) - 0 $30.37 $20.96

North / Northeast Ft Worth 4,117,783 1,218,833 11,664 29.6% 25.5% (16,138) 219,884 - 260,000 $24.40 $23.61

Lewisville / Denton 6,031,669 1,038,882 97,633 17.2% 13.5% (241,766) 181,582 - 316,438 $22.18 $22.40

South Ft Worth 8,361,864 952,917 178,513 11.4% 8.9% (48,505) 28,792 27,850 20,070 $29.02 $23.66

Totals 247,521,892 52,074,399 5,951,469 21.0% 18.3% 1,160,131 3,965,595 886,326 4,908,192 $29.65 $21.67

Property TypesTotal

Inventory SF Direct Sublease Direct

AvailabilityDirect

Vacancy Current Qtr. T-12 MonthsCompletions Current Qtr

Under Construction Asking Rent

Y-O-Y Change

Class A 137,900,260 30,610,423 4,196,095 22.2% 19.4% 1,351,537 3,613,090 754,866 4,335,726 $29.65 2.4%

Class B 101,923,948 20,510,965 1,750,572 20.1% 17.5% (145,781) 333,037 131,460 572,466 $21.67 1.8%

Class C 7,697,684 953,011 4,802 12.4% 9.7% (45,625) 19,468 - - $17.75 4.7%

Totals 247,521,892 52,074,399 5,951,469 21.0% 18.3% 1,160,131 3,965,595 886,326 4,908,192 $26.19 2.8%

TOTAL SPACE AVAILABLE CONSTRUCTION ASKING RENTDIRECT NET ABSORPTIONDIRECT AVAILABLE / VACANT

TOTAL SPACE AVAILABLE DIRECT AVAILABLE / VACANT DIRECT NET ABSORPTION CONSTRUCTION ASKING RENT

SIGNIFICANT LEASE TRANSACTIONS | Q1 2019Significant Lease TransactionsTenant SF Type Building Class SubmarketCo-Op Financial Services 108,000 New Campus at CentrePort B Mid CitiesDXC Technology 100,267 New 3400 CityLine A RichardsonCognizant 82,187 Sublease Dominion Legacy Office Center A Upper Tollway/West PlanoHana 67,006 New PwC Tower - Park District A Uptown/Turtle CreekVCE Company, LLC 57,100 Renewal Collins Crossing A RichardsonKatten Muchin Rosenman LLP 56,340 New PwC Tower - Park District A Uptown/Turtle CreekOracle 55,000 New Las Colinas Connection A Las ColinasCommon Desk 51,801 New Trammell Crow Center A Dallas CBDJDA Software 53,750 Sublease Cypress Waters Office Park A Las ColinasUS General Service Administration 44,255 New One Main B Dallas CBD

ABOUT MADISON MARQUETTE

Madison Marquette is a leading private real estate investment manager, developer, operator and service provider headquartered in Washington,

D.C. Founded in 1992, the company’s reputation is built on the successful development, repositioning and redevelopment of landmark mixed-

use assets in major and emerging high-growth markets throughout the United States. Madison Marquette partners with global, institutional and

private investors to achieve industry-leading investment performance across asset classes -- including mixed-use, retail, office, medical, industrial,

senior living and multi-family. As a full-service real estate provider, the company delivers integrated leasing and management services to a diverse

portfolio of 330 assets in 24 states and manages an investment portfolio valued at over $6 billion. Madison Marquette has over 600 professionals

providing nationwide service from 13 regional markets and is a member of the Capital Guidance group of companies.


2019

KELSEY OLDHAMMarketing Manager

[email protected]

DOUG BERRYVice President,

Creative [email protected]

ARIEL GUERREROSenior Vice President,Director of Research

[email protected]

JAMES DECMANResearch Manager

[email protected]

KURT CHERRYExecutive

Vice [email protected]

PAMELA PERKINSVice President,

[email protected]

WADE BOWLINPresident, Property Services

Central [email protected]

MICHAEL CARMICHAEL Vice President,

Leasingmichael.carmichael @madisonmarquette.com

dallas/ft.worth office market report€¦ · 16/04/2019 · more than seven years into the current...

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