cushmanwakefield.com I 1 Dallas-Fort Worth Office Q1 2017 MARKETBEAT Economy The Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment endure. According to Moody’s Analytics population increased by ±142,000 year-over-year, reaching ±7.3 million people at the end of Q1 2017, equating to an average of 395 new residents each day. During the same time period, the Dallas-Fort Worth-Arlington employment base increased by ±125,000, dropping the unemployment rate by 10-basis-points (BP) and closing the first quarter of 2017 at 3.8%. Out of the ±125,000 jobs added, 29% (37,000 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 62% of the entire office sector employment and is the leading indicator for office space demand. Market Overview At the close of Q1 2017, office vacancy in the Dallas-Fort Worth market stood at 16.5%. This marks a slight 10 BP decrease from the 16.6% rate that was in place three months ago. The Dallas-Fort Worth office market began 2017 on a strong note, absorbing more than 1.5 million square feet (MSF) during the first quarter. Occupancy growth took place in 13 of Dallas-Fort Worth’s 22 office submarkets in Q1. The Las Colinas submarket (12.4% vacancy) led the way with more than 609,000 square feet (SF) of net absorption, due in large part to CoreLogic moving into its new 327,000 SF build- to-suit (BTS) space and Caliber Home Loans occupying all 183,000 SF in Point West I. The Far North Dallas submarket (14.9%) followed with a net gain of over 413,000 SF, which can largely be attributed to Shelton School occupying the 317,000 SF former State Farm space in Dallas. During the first quarter of 2017, the Dallas-Fort Worth office market experienced a 21% (213,000 SF) increase in sublease space, primarily due to local companies “right-sizing.” A recent trend has emerged that has businesses implementing workplace strategies that better leverage space, work patterns, technology, and HR policies to support the changing nature of their work, while increasing productivity and reducing costs. Currently, sublease space accounts for DALLAS OFFICE Overall Vacancy Overall Net Absorption/Overall Asking Rent 4QTR TRAILING AVERAGE Market Indicators (Overall, All Classes) Q1 16 Q1 17 12-Month Forecast Vacancy 16.0% 16.5% Net Absorption (SF) 2.1M 1.5M Under Construction (SF) 6.5M 5.9M Average Asking Rent* $25.44 $26.15 Economic Indicators Q1 16 Q1 17 12-Month Forecast DFW Employment 3,470 3,595 DFW Unemployment 3.9% 3.8% U.S. Unemployment 4.9% 4.8% *Rental rates reflect gross asking $PSF/year $18.00 $20.00 $22.00 $24.00 $26.00 $28.00 0.8 0.6 0.4 0.2 0.0 1.6 1.4 1.2 1.0 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 $16.00 Q1 2017 Net Absorption, MSF Asking Rent, $ PSF Millions 15% 16% 17% 18% 19% 20% 21% 22% Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Historical Average = 18.8%
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cushmanwakefield.com I 1
Dallas-Fort WorthOffice Q1 2017
MARKETBEAT
EconomyThe Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment endure. According to Moody’s Analytics population increased by ±142,000 year-over-year, reaching ±7.3 million people at the end of Q1 2017, equating to an average of 395 new residents each day. During the same time period, the Dallas-Fort Worth-Arlington employment base increased by ±125,000, dropping the unemployment rate by 10-basis-points (BP) and closing the first quarter of 2017 at 3.8%. Out of the ±125,000 jobs added, 29% (37,000 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 62% of the entire office sector employment and is the leading indicator for office space demand.
Market OverviewAt the close of Q1 2017, office vacancy in the Dallas-Fort Worth market stood at 16.5%. This marks a slight 10 BP decrease from the 16.6% rate that was in place three months ago.
The Dallas-Fort Worth office market began 2017 on a strong note, absorbing more than 1.5 million square feet (MSF) during the first quarter. Occupancy growth took place in 13 of Dallas-Fort Worth’s 22 office submarkets in Q1. The Las Colinas submarket (12.4% vacancy) led the way with more than 609,000 square feet (SF) of net absorption, due in large part to CoreLogic moving into its new 327,000 SF build-to-suit (BTS) space and Caliber Home Loans occupying all 183,000 SF in Point West I. The Far North Dallas submarket (14.9%) followed with a net gain of over 413,000 SF, which can largely be attributed to Shelton School occupying the 317,000 SF former State Farm space in Dallas.
During the first quarter of 2017, the Dallas-Fort Worth office market experienced a 21% (213,000 SF) increase in sublease space, primarily due to local companies “right-sizing.” A recent trend has emerged that has businesses implementing workplace strategies that better leverage space, work patterns, technology, and HR policies to support the changing nature of their work, while increasing productivity and reducing costs. Currently, sublease space accounts for
DALLAS OFFICE
Overall Vacancy
Overall Net Absorption/Overall Asking Rent 4QTR TRAILING AVERAGE
Market Indicators (Overall, All Classes) Q1 16 Q1 17 12-Month
Forecast
Vacancy 16.0% 16.5%
Net Absorption (SF) 2.1M 1.5M
Under Construction (SF) 6.5M 5.9M
Average Asking Rent* $25.44 $26.15
Economic Indicators Q1 16 Q1 17 12-Month
Forecast
DFW Employment 3,470 3,595
DFW Unemployment 3.9% 3.8%
U.S. Unemployment 4.9% 4.8%
*Rental rates reflect gross asking $PSF/year
$18.00
$20.00
$22.00
$24.00
$26.00
$28.00
0.8
0.6
0.4
0.2
0.0
1.6
1.4
1.2
1.0
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016
$16.00
Q1 2017
Net Absorption, MSF Asking Rent, $ PSF
Mill
ions
15%
16%
17%
18%
19%
20%
21%
22%
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017
Historical Average = 18.8%
cushmanwakefield.com I 2
Dallas-Fort WorthOffice Q1 2017
MARKETBEAT
3.4% of the total available space in the Dallas-Fort Worth market.
Throughout Q1 2017, developers added more than 1.4 MSF of new product to the Dallas-Fort Worth office market, of which 77% (1.1 MSF) was delivered in the form of speculative space. In terms of new construction, two projects broke ground totaling 516,000 SF, including Brinker International’s 216,000 SF BTS facility at Cypress Waters, in the Las Colinas submarket. Cushman & Wakefield is currently tracking more than 5.8 MSF under construction, with nearly 46% (2.7 MSF) occurring in Legacy/Frisco submarket.
Dallas-Fort Worth’s overall average asking rate continues to rise and currently stands at $26.15 per square foot (PSF), on an annual full-service basis. This marks a 1.9% ($0.48 PSF) increase quarter-over-quarter and an even more considerable increase of 2.8% ($0.71 PSF) year-over-year. The Oak Cliff ($17.15 PSF) and Mid Cities ($22.41 PSF) submarkets recorded the largest quarterly gains, increasing 12% and 6.6%, respectively. The Uptown/Turtle Creek ($38.10 PSF) and Preston Center ($37.04 PSF) remain atop all other submarkets in terms of average asking rates, and it is no coincidence that the overall Class A rates in these trade areas are also the highest in the Dallas-Fort Worth market, at $40.30 PSF and $37.77 PSF, respectively.
Sublease & Direct Trend SUBLEASE SPACE INCREASING.
THE DALLAS-FORT WORTH OFFICE MARKET EXPERIENCED A 21% (213,000 SF) INCREASE IN SUBLEASE SPACE, PRIMARILY DUE TO LOCAL COMPANIES “RIGHT-SIZING” DURING THE FIRST QUARTER OF 2017.
CLASS A Asking Rent TrendCLASS A RENTS INCREASED 1.1% IN Q1 2017.
New Supply NEW SUPPLY IN 2017 IS EXPECTED TO EXCEED THE HISTORICAL AVERAGE
BY 116%.
Outlook
• Numerous tenants are in the market exploring space options, but likely will lease less square footage due to more efficient space layouts based on new workplace design strategies.
• New construction deliveries over the next several months will put an upward pressure on vacancy rates.
• Due to increasing operating expenses, asking lease rates are expected to raise throughout 2017.
About Cushman & WakefieldCushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 45,000 employees in more than 70 countries help occupiers and investors optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. 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. 2017 marks the 100-year anniversary of the Cushman & Wakefield brand. 100 years of taking our clients’ ideas and putting them into action. To learn more, visit www.cushwakecentennial.com, www.cushmanwakefield.com or follow @CushWake on Twitter.