Grubb & Ellis Q1 Market Snapshot for Dallas-Fort Worth
Posted April 25, 2011
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This Grubb & Ellis summary is designed to provide a brief overview of the Dallas office and industrial market during the first quarter of 2011.
OFFICE
- The Dallas-Fort Worth office market vacancy rate was 22.7 percent at the end of the first quarter of 2011, down 20 basis points from year-end 2010.
• The vacancy rate for Class A office space decreased 20 basis points to 21 percent, while vacancy in Class B properties dropped to 25 percent, a 30-basis-point reduction.
- The region's office market posted 503,512 square feet of positive net absorption in the first quarter. Class B properties witnessed 331,147 square feet of positive net absorption after tenants took occupancy of 195,000 square feet of space within the ConVergence Office Center in Lewisville. Class A properties posted 176,437 square feet of positive net absorption.
• The West Plano/Frisco submarket witnessed 312,459 square feet of positive net absorption during the first quarter. This was driven by: MedAssets Inc.'s occupancy of 100,000 square feet of space located at 5100 Tennyson Parkway, Plano; Vendor Resource Management's move into roughly 100,000 square feet of space located at 4100 International Parkway, Carrollton; and Hyundai Capital America's occupancy of 65,394 square feet of space located at 6100 W. Plano Parkway, Plano.
• The CBD experienced 101,702 square feet of positive net absorption as a result of several tenants taking occupancy in downtown towers, including the FDIC's occupancy of 25,765 square feet of space in Energy Plaza.
- Quarter-over-quarter, average asking rental rates for the region's Class A office market decreased $0.12 to $23.16 per square foot. Average asking rental rates for the Class B office market rose to $17.90 per square foot during the first quarter, a $0.13 increase from year-end 2010.
- Nearly 5.3 million square feet of sublease space was available at the end of the first quarter, a roughly 271,000-square-foot reduction from the previous quarter. The reduction of 925,000 square feet of sublease space available in the region over the past 12 months has pushed the region's vacancy rate down; however, with sublease space accounting for 10.1 percent of the total available space in the market, it continues to apply downward pressure on rents and a boost in concessions.
- The Dallas-Fort Worth region closed the first quarter with 281,600 square feet of office space under construction in the form of owner-occupied or build-to-suit projects.
- During the first quarter, nine multi-tenant office properties traded hands, averaging $118-per-square-foot and an average capitalization rate of 7.7 percent. The largest sale was City Place, a three-building office and retail complex totaling more than 1 million square feet of space in Fort Worth, which sold for $74 million, or $62 per square foot.
Analysis and Forecast:
The Dallas-Fort Worth office market continued on its slow path to recovery during the first quarter, with the market seeing a significant increase in leasing activity in Class B properties. Spurring the activity was the region's creation of 65,000 jobs in the 12-month period ending February 2011, accounting for a 2.3 percent increase and the second strongest employment gains in the nation. Additionally, no speculative construction projects are anticipated to break ground in the immediate future. The pent up demand for space from employment additions coupled with a lack of speculative construction deliveries should translate into increased occupancy rates and more stable rents by year-end 2011. On the investment side, the office market is forecast to see an increase in transaction volume as the capital markets resume lending activities and a number of investors return that have had equity on the sidelines.
INDUSTRIAL
• The Dallas-Fort Worth industrial vacancy rate decreased to 11.6 percent during the first quarter of 2011, down 30 basis points from year-end 2010.
• Overall, the region experienced more than 1.7 million square feet of positive net absorption.
• The warehouse/distribution property sector led the way in positive net absorption, posting more than 2 million square feet, while the R&D/flex property sector posted 305,570 square feet of positive net absorption. The only property type to experience negative net absorption was general industrial with nearly 617,500 square feet.
• In a breakdown by submarkets, the DFW Airport submarket fared the best during the first quarter, experiencing 508,584 square feet of positive net absorption. The East Dallas and Great Southwest/Arlington submarkets were close behind, posting 430,786 and 356,866 square feet of positive net absorption each, respectively. The North Fort Worth and Plano/Allen/McKinney submarkets struggled with move-outs during the first quarter. In north Fort Worth, Motorola Inc. exited 668,018 square feet of space at 5555 N. Beach St., and in Allen, Sanmina-SCI Corp. moved out of 261,700 square feet of space at 105 W. Bethany Drive.
• Average asking rental rates for R&D/flex and general industrial space each increased $0.02 to $6.46 per square foot triple net and $3.76 per square foot triple net, respectively. The asking rental rates for warehouse/distribution space averaged $3.53 per square foot triple net, a $0.01 increase from year-end 2010.
• Approximately 6.5 million square feet of sublease space was available at the close of the first quarter, the region's lowest level of sublease inventory since mid-2008.
• Four industrial projects totaling 1.4 million square feet of space were under construction at the end of the first quarter of 2011. These include the more than 1-million-square-foot build-to-suit project for Whirlpool U.S.A. in Wilmer, which is projected for delivery in the second quarter of 2011. Andrews Distribution also broke ground on a 243,206-square-foot distribution facility in Allen that should deliver in early 2012.
Analysis and Forecast:
After experiencing more than 3 million square feet of positive net absorption over the past five quarters, the Dallas-Fort Worth industrial market has made up for the roughly 1.6 million square feet of negative net absorption experienced in 2009. The market is on its way to a recovery and the region's strengthening economy, including increased consumer spending and manufacturing trade, should drive long-term improvement. In the near-term, leasing fundamentals are expected to strengthen slightly with rental rates firming up and vacancy further subsiding by year-end. The competitive rental rates currently offered for modern big-box warehouse space in North Texas will likely encourage companies to lock in favorable leasing packages during the next few quarters.
To access the full Dallas Metro Trends reports and other Grubb & Ellis research publications, visit http://www.grubb-ellis.com/research.
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