cushmanwakefield.com I 1 Dallas-Fort Worth Office Q1 2018 MARKETBEAT Economy The Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment persist. According to Moody’s Analytics, the region’s population increased by 136,000 year-over-year, reaching 7.5 million people at the end of March. This equates to an average of 375 new residents each day. During the same time period, the Dallas-Fort Worth-Arlington employment base increased by 87,000, dropping the unemployment rate by 60 basis points (bps) to 3.4% at the close of Q1 2018. Out of the 87,000 jobs added, 22% (19,000 jobs) can be attributed to the office sector, which includes business and professional services, information/technology, and financial activities. The business and professional services category accounts for 61% (603,000 jobs) of the entire office sector employment base (985,000 jobs) and is the leading indicator for office space demand. Market Overview The Dallas-Fort Worth office market continued to show growth during the first three months of the year. A total of 5.1 million square feet (msf) of new space was under construction at the close of Q1 2018, down slightly from the 5.5 msf for Q1 2017. Of the 5.1 msf that has broken ground, 43% (2.2 msf) is comprised of build-to-suit (BTS) projects. Completions for the quarter totaled nearly 1.5 msf, of which 33% was preleased. Looking ahead, Cushman & Wakefield is tracking nearly 3 msf of office space slated for completion during 2018, with projects spanning across the region. Office vacancy in the Dallas-Fort Worth market increased significantly in Q1 2018, climbing 120 bps to 17.7%, year-over- year. The jump in vacancy can be attributed to multiple major move-outs during the quarter. Among them was Fannie Mae, which vacated two buildings totaling 560,000 square feet (sf) in Far North Dallas and moved to Granite Park in the Legacy/Frisco submarket. Additionally, JPMorgan vacated 351,000 sf in Far North Dallas and moved into its new owner- occupied campus in Legacy/Frisco. + Occupancy growth took place in 12 of Dallas-Fort Worth’s 21 submarkets, with the Las Colinas and Arts District submarkets recording the most absorption through the first three months of 2018. Signet Jewelers moved into its newly constructed 250,000 sf office in Freeport (Las Colinas), DALLAS OFFICE Overall Vacancy Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE Market Indicators (Overall, All Classes) Q1 17 Q1 18 12-Month Forecast Overall Vacancy 16.5% 17.7% Net Absorption (SF) 1.0M 0.5M Under Construction (SF) 5.9M 5.1M Average Asking Rent* $26.15 $27.31 Economic Indicators* Q1 17 Q1 18 12-Month Forecast DFW Employment 3,565K 3,652K DFW Unemployment 4.0% 3.4% U.S. Unemployment 4.7% 4.1% *Q1 data is based on the average of January & February values *Rental rates reflect gross asking $PSF/year $16.00 $18.00 $20.00 $22.00 $24.00 $26.00 $28.00 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Millions Net Absorption, MSF Asking Rent, $ PSF 14% 16% 18% 20% 22% Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 HISTORICAL AVERAGE = 18.6%
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cushmanwakefield.com I 1
Dallas-Fort WorthOffice Q1 2018
MARKETBEAT
EconomyThe Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment persist. According to Moody’s Analytics, the region’s population increased by 136,000 year-over-year, reaching 7.5 million people at the end of March. This equates to an average of 375 new residents each day. During the same time period, the Dallas-Fort Worth-Arlington employment base increased by 87,000, dropping the unemployment rate by 60 basis points (bps) to 3.4% at the close of Q1 2018. Out of the 87,000 jobs added, 22% (19,000 jobs) can be attributed to the office sector, which includes business and professional services, information/technology, and financial activities. The business and professional services category accounts for 61% (603,000 jobs) of the entire office sector employment base (985,000 jobs) and is the leading indicator for office space demand.
Market Overview
The Dallas-Fort Worth office market continued to show growth during the first three months of the year. A total of 5.1 million square feet (msf) of new space was under construction at the close of Q1 2018, down slightly from the 5.5 msf for Q1 2017. Of the 5.1 msf that has broken ground, 43% (2.2 msf) is comprised of build-to-suit (BTS) projects. Completions for the quarter totaled nearly 1.5 msf, of which 33% was preleased. Looking ahead, Cushman & Wakefield is tracking nearly 3 msf of office space slated for completion during 2018, with projects spanning across the region.
Office vacancy in the Dallas-Fort Worth market increased significantly in Q1 2018, climbing 120 bps to 17.7%, year-over-year. The jump in vacancy can be attributed to multiple major move-outs during the quarter. Among them was Fannie Mae, which vacated two buildings totaling 560,000 square feet (sf) in Far North Dallas and moved to Granite Park in the Legacy/Frisco submarket. Additionally, JPMorgan vacated 351,000 sf in Far North Dallas and moved into its new owner-occupied campus in Legacy/Frisco.+
Occupancy growth took place in 12 of Dallas-Fort Worth’s 21 submarkets, with the Las Colinas and Arts District submarkets recording the most absorption through the first three months of 2018. Signet Jewelers moved into its newly constructed 250,000 sf office in Freeport (Las Colinas),
DALLAS OFFICE
Overall Vacancy
Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE
Market Indicators (Overall, All Classes) Q1 17 Q1 18 12-Month
Forecast
Overall Vacancy 16.5% 17.7%
Net Absorption (SF) 1.0M 0.5M
Under Construction (SF) 5.9M 5.1M
Average Asking Rent* $26.15 $27.31
Economic Indicators*
Q1 17 Q1 18 12-Month Forecast
DFW Employment 3,565K 3,652K
DFW Unemployment 4.0% 3.4%
U.S. Unemployment 4.7% 4.1%
*Q1 data is based on the average of January & February values
which largely contributed to the submarket’s over 600,000 sf of absorption for the quarter. The Arts District absorbed 245,000 sf—nearly 80% of the total occupancy growth in the Dallas CBD. Goldman Sachs made up a significant amount of this, occupying 175,000 sf at Trammell Crow Center.
Dallas-Fort Worth’s overall average asking lease rate continues to climb, closing the first quarter of 2018 at $27.30 per square foot (psf) on an annual full-service basis. This marks a 3% ($0.81 psf) increase from Q4 2017 ($26.49) and a 4.4% ($1.15) increase from a year ago. During Q1 2018, Cushman & Wakefield began tracking Dallas’ central business district in three micro-markets, due to the distinct characteristics of the Arts District, the West End, and CBD Core. Additionally, Uptown and Turtle Creek were split, in order to show competing markets more clearly. With the new construction and multimillion-dollar redevelopments along Ross Avenue, the Arts District boasts Class A rates of $43.40 psf—second only to Uptown ($47.24 psf). These rents are a stark contrast to Class A rates in neighboring submarkets, the CBD Core ($26.61 psf) and West End ($31.84 psf). Overall, lease rates in downtown Dallas climbed an impressive $2.74 psf in the past year (from $28.03 psf to $30.77 psf), an increase of 9.8%. Other big year-over-year movers were Preston Center, up $3.70 psf (from $37.04 to $40.74) and Legacy/Frisco, up $1.38 (from $32.95 to $34.44).
Sublease & Direct Trend SUBLEASE SPACE INCREASED 37% YEAR-OVER-YEAR
Class A Asking Rent TrendCLASS A RENTS DECREASED 1.7% DURING THE FIRST QUARTER OF 2018.
CUSHMAN & WAKEFIELD IS TRACKING NEARLY 3 MSF OF OFFICE SPACE SLATED FOR COMPLETION DURING 2018, WITH PROJECTS
SPANNING ACROSS THE REGION.
New Supply NEW SUPPLY IN 2018 EXCEEDED THE HISTORICAL AVERAGE BY 40%.
Outlook• A large number of office tenants will continue to
renegotiate leases throughout 2018, as many 10-year leases were signed during the downturn in 2008 and 2009.
• Landlords will continue to update older buildings and add amenities to keep up with tenant demands and compete with newer product.
• The Dallas market is still seeing a good balance of corporate relocation activity and organic growth from existing company expansions.
0
1
2
3
4
5
6
2003 2006 2009 2012 2015 2018
Mill
ions
New Supply Historic Average
35.3 35.1 34.334.8
36.01.0
1.21.4
1.5
1.4
313233343536373839404142
Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018
Milli
ons
Direct Sublease
$19.00
$21.00
$23.00
$25.00
$27.00
$29.00
$31.00
$33.00
2003 2006 2009 2012 2015 2018
HISTORICAL AVERAGE = 2.3 MSF
cushmanwakefield.com I 3
Dallas-Fort WorthOffice Q1 2018
MARKETBEAT
*Rental rates reflect gross asking $PSF/year+ Cushman & Wakefield does not include owner-occupied buildings in inventory
About Cushman & WakefieldCushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.