Businesses in North Texas have nearly unlimited options when it comes to office space.
A record number of offices are available in Dallas-Fort Worth. More than 76 million square feet of office space is available when you factor in subleased space and what's under construction in new buildings.
That's more than double the office space in all of Dallas' downtown towers, according to estimates from commercial real estate firm Transwestern.
The supply of vacant office space for sale in the region is up almost 25% compared to pre-pandemic levels.
One of the biggest increases is in sublease space, where businesses still pay rent but are willing to rent it out to other businesses. Transwestern reported that a record 11.4 million square feet of D-FW sublease space came on the market in the most recent quarter.
“In terms of absolute area, today is a record high,” Transwestern research manager Andrew Matheny said. “I think we're approaching the 1980s record in terms of the percentage of office space available.”
The last time D-FW office vacancies spiked was in the 1980s, due to rampant overbuilding and the collapse of the banking sector.
This time, the culprit is that the use of office space has declined since the pandemic, leaving North Texas with a glut of vacant offices.
Most of the available office space — more than 10 million square feet of vacant and subleased space — is in the downtown Dallas area, according to Transwestern's third-quarter survey. There are also large amounts of vacant office space along the Dallas North Tollway in West Plano and Las Colinas.
The largest percentage of vacant offices are located in older and poorly located buildings.
“Most of the vacancies are in spaces B and C, which are largely unused,” said Jack Crews, a longtime commercial real estate broker. “Most of the A and AA buildings are rented, and rates for these buildings are rising. Many older buildings need to be demolished to make way for new modern mixed-use developments.”
Developers are currently reconfiguring some of the old offices for new uses, such as apartments and hotel rooms. But even supporters of these projects admit that this is not the solution to all outdated offices.
Robbie Batty, vice chairman of Cushman & Wakefield's Dallas office, said companies looking for a D-FW office will need to evaluate their options, including whether to lease some of the millions of square feet of sublease space. He said there are many things that need to be done.
“There are significantly more attractive options for tenants to consider,” Mr Batty said. “The root cause of the abundance of sublease options and increased vacancy in the office market is that tenants now require approximately 30% less space than before the pandemic.
“As a result, well-equipped office space is left vacant and quickly backfilled by others,” he said. “Decision makers are taking their time as they try to determine how much office space their companies will need in the short and long term future with new hybrid work models. current way of working, and it was difficult for management to determine how that would impact their office space needs.”
Businesses are being lured into lease deals by the largest rental concessions the D-FW market has experienced in more than a decade.
“As demand for office space has declined, landlords are increasing concessions to attract new tenants to their office buildings in the form of additional free rent and tenant improvement allowances,” Bhatti said.
While older buildings are on the market, newer tenants are lining up for newer D-FW office buildings.
Approximately 4.3 million square feet of office space is under construction in North Texas. More than 20% of the buildings still under construction already have leases signed.
Rents for next-generation D-FW office space are at record levels.
CBRE Vice Chairman Jeff Ellerman said, “Space in the best modern office buildings is in high demand and is delivering some of the highest rents ever seen in Dallas, while other buildings are… There's less demand, so it's now a commodity space.” “There’s a flight to quality happening for companies that want to get their employees back into the office and have really attractive, cool spaces in prime locations.
“This applies to all major markets in the country.”
