cushmanwakefield.com I 1 Dallas-Fort Worth Office Q4 2017 MARKETBEAT Economy The Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment persists. According to Moody’s Analytics, population increased by 144,000 year-over-year, reaching 7.44 million people at the close of 2017. This equates to an average of 400 new residents each day. During the same time period, the Dallas-Fort Worth- Arlington employment base increased by 90,000, dropping the unemployment rate by 70 basis points (bps) and closing 2017 at 3.3%. Out of the 90,000 jobs added, 37% (33,000 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% (620,000 jobs) of the entire office sector employment base (993,000 jobs) and is the leading indicator for office space demand. Market Overview At the close of 2017, office vacancy in the Dallas-Fort Worth market stood at 16.7%, a 50 bps increase from the 16.2% rate at the end of Q3 2017. This rate stayed flat from 2016 (16.6% to 16.7%) despite 3.3 million square feet (msf) in new office space deliveries during 2017. The Dallas-Fort Worth market experienced a strong finish to 2017, absorbing more than 650,000 square feet (sf) in Q4. The office market closed the year posting under 4.7 msf in occupancy growth, which ranks No. 1 among Cushman & Wakefield’s 87 metro markets. Overall net absorption increased 38.5% over the 2.9 msf absorbed in 2016. Net gains took place in eight of the 22 Dallas-Fort Worth office submarkets in Q4 2017. The Legacy/Frisco submarket (14.5% vacancy) led the region, for yet another quarter, with over 250,000 sf of net absorption, accounting for 39% of all occupancy growth during the fourth quarter. Legacy/Frisco’s net gain is due in large part to the delivery and occupancy of Fannie Mae (337,500 sf) in Granite Park VII. Las Colinas (13.8% vacancy) followed, posting almost 140,000 sf of positive absorption. This is due to multiple occupancies in the 20,000-30,000 sf range, such as GSA (35,200 sf) occupying Fuller Ridge I, MCR Investors (25,000 sf) occupying Park West I and Nucor Corp. (31,000 sf) occupying 5001 Statesman Dr. The Dallas CBD continues to see growth, due in large part to big redevelopment projects. The Statler Hotel complex finished its renovation, which included a new office for The Dallas Morning News (92,000 sf) in Q2 2017. Other office buildings that DALLAS OFFICE Overall Vacancy Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE Market Indicators (Overall, All Classes) Q4 16 Q4 17 12-Month Forecast Overall Vacancy 16.6% 16.7% Net Absorption (SF) -0.5M 0.7M Under Construction (SF) 7.0M 5.2M Average Asking Rent* $25.67 $26.49 Economic Indicators* Q4 16 Q4 17 12-Month Forecast DFW Employment 3,562K 3,651K DFW Unemployment 4.0% 3.3% U.S. Unemployment 4.7% 4.1% *Q4 data is based on the average of October & November 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 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Millions Net Absorption, MSF Asking Rent, $ PSF 14% 16% 18% 20% 22% Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 HISTORICAL AVERAGE = 18.6%
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cushmanwakefield.com I 1
Dallas-Fort WorthOffice Q4 2017
MARKETBEAT
EconomyThe Dallas-Fort Worth-Arlington economy continues to thrive, as increases in total population and overall employment persists. According to Moody’s Analytics, population increased by 144,000 year-over-year, reaching 7.44 million people at the close of 2017. This equates to an average of 400 new residents each day. During the same time period, the Dallas-Fort Worth-Arlington employment base increased by 90,000, dropping the unemployment rate by 70 basis points (bps) and closing 2017 at 3.3%. Out of the 90,000 jobs added, 37% (33,000 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% (620,000 jobs) of the entire office sector employment base (993,000 jobs) and is the leading indicator for office space demand.
Market OverviewAt the close of 2017, office vacancy in the Dallas-Fort Worth market stood at 16.7%, a 50 bps increase from the 16.2% rate at the end of Q3 2017. This rate stayed flat from 2016 (16.6% to 16.7%) despite 3.3 million square feet (msf) in new office space deliveries during 2017.
The Dallas-Fort Worth market experienced a strong finish to 2017, absorbing more than 650,000 square feet (sf) in Q4. The office market closed the year posting under 4.7 msf in occupancy growth, which ranks No. 1 among Cushman & Wakefield’s 87 metro markets. Overall net absorption increased 38.5% over the 2.9 msf absorbed in 2016. Net gains took place in eight of the 22 Dallas-Fort Worth office submarkets in Q4 2017. The Legacy/Frisco submarket (14.5% vacancy) led the region, for yet another quarter, with over 250,000 sf of net absorption, accounting for 39% of all occupancy growth during the fourth quarter. Legacy/Frisco’s net gain is due in large part to the delivery and occupancy of Fannie Mae (337,500 sf) in Granite Park VII. Las Colinas (13.8% vacancy) followed, posting almost 140,000 sf of positive absorption. This is due to multiple occupancies in the 20,000-30,000 sf range, such as GSA (35,200 sf) occupying Fuller Ridge I, MCR Investors (25,000 sf) occupying Park West I and Nucor Corp. (31,000 sf) occupying 5001 Statesman Dr.
The Dallas CBD continues to see growth, due in large part to big redevelopment projects. The Statler Hotel complex finished its renovation, which included a new office for The Dallas Morning News (92,000 sf) in Q2 2017. Other office buildings that
DALLAS OFFICE
Overall Vacancy
Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE
Market Indicators (Overall, All Classes) Q4 16 Q4 17 12-Month
Forecast
Overall Vacancy 16.6% 16.7%
Net Absorption (SF) -0.5M 0.7M
Under Construction (SF) 7.0M 5.2M
Average Asking Rent* $25.67 $26.49
Economic Indicators* Q4 16 Q4 17 12-Month
Forecast
DFW Employment 3,562K 3,651K
DFW Unemployment 4.0% 3.3%
U.S. Unemployment 4.7% 4.1%
*Q4 data is based on the average of October & November values
benefitted from renovations were 2551 Elm (44,600 sf YTD net absorption), Factory Six03 (34,800 sf), 400 Record (13,400 sf) and Ross Tower (12,000 sf). Trammell Crow Center is currently being redeveloped; improvements have encouraged tenants such as Vinson & Elkins and Baker Botts to renew their leases of 108,000 sf and 101,700 sf, respectively. Dallas CBD wrapped up 2017 with a vacancy rate of 24.7%, relatively unchanged from the rate (24.8%) that was in place at the close of Q4 2016.
During 2017, developers added over 3.3 msf of new product to the Dallas-Fort Worth market, of which 48% (1.6 msf) was preleased. Specifically, over 550,000 sf of new product was added in Q4 2017. Fannie Mae’s build-to-suit (BTS) project Granite Park VII in Legacy/Frisco contributed almost 340,000 sf in Q4, while Preston Center’s The Berkshire added over 170,000 sf. The Dallas-Fort Worth office market will start 2018 with over 5 msf under construction, of which about 3 msf is speculative.
Dallas-Fort Worth’s overall average asking rate for office space rose slightly during Q4 2017, with a current rate of $26.49 per square foot (psf) on an annual full-service basis. This marks a 1.7% ($0.45 psf) increase from the Q3 2017 ($26.04) reading and a 3.1% ($0.82) increase over year-end 2016. The Preston Center and North Central Expressway submarkets recorded the largest quarterly increases in average asking rates in Q4 2017, 8.8% ($3.46 psf) and 7.1% ($2.15 psf), respectively. Preston Center surpassed all other submarkets with an average asking rate of $39.52 psf, while Uptown/Turtle Creek has the second highest asking rate of $36.28 psf. These two trade areas continue to have the highest Class A rates in the Dallas-Fort Worth market, at $41.47 psf and $41.66 psf, respectively.
Sublease & Direct Trend SUBLEASE SPACE INCREASED 37% SINCE Q4 2016.
DURING 2017, DEVELOPERS ADDED OVER 3.3 MSF OF NEW PRODUCT TO THE DALLAS-FORT
WORTH MARKET, OF WHICH 48% (1.6 MSF) WAS PRELEASED.
Class A Asking Rent TrendCLASS A RENTS INCREASED 1.9% IN 2017.
New Supply NEW SUPPLY IN 2017 EXCEEDED THE HISTORICAL AVERAGE BY 40%.
Outlook• Companies are continuing to become more efficient, but it’s largely being offset by increasing head counts. Increase in space on the market is not anticipated to drastically increase due to downsizing.
• Cushman & Wakefield anticipates a lot of rollover activity in 2018, as many 10-year leases were signed in 2008 and 2009 during the downturn and are in process of renegotiation.
• The market is still seeing a good balance of corporate relocation activity and organic growth from existing company expansions.
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.