The Dallas-Fort Worth area is a leading area around the country in terms of office occupancy, but there remain plenty of employees working from home, according to the latest report from Transwestern.
“I think various metrics all have us about 40% below the same time last year, but we’re ahead of a lot of the other metros that were a little later in reopening, or maybe reopened before but are still working from home a lot,” said Andrew Matheny, Transwestern’s Research Manager.
Despite a rebound in employment, office fundamentals have not enjoyed a similar recovery as net absorption totaled -2.1 million square feet in Q3 2020 vs. 500,000 square feet Q3 2019. Move-outs were most pronounced in Las Colinas, the CBD, and LBJ Freeway, while Preston Center and Richardson/Plano were the only submarkets to experience positive absorption this quarter, according to Transwestern.
Sublease space has been the big talking point in commercial real estate in the past few quarters, Matheny said.
More sublease space is coming into the market, according to the Transwestern report. Sublease space on the market has been on the increase over the last several months, now totaling 8.5 million square feet within CBRE Research’s tracked office dataset.
This equates to 3.7% of total inventory and 14% of current availability (direct plus sublease). Last quarter’s figures were 2.2% and 8.6%, respectively.
“What was really interesting though, was that we’ve been tracking this pretty closely and it looks like the small and midsize users were really listing a lot of [sublease] space at the beginning of the first half of the quarter,” said Matheny. “That fits what we’re hearing, which is that some of the smaller users are starting to get back and maybe start looking at the market, but the larger ones are holding off or even starting to bring some of their own space out for sublease now.”
Asking rents remain unchanged in most properties on a direct basis, although some submarkets have seen average rent movement due to sublease availability, according to Transwestern.
After several projects were delivered in Q3 2020, current office development underway now totals 4 million square feet with approximately 45% preleased. District 114 at Kimball Park in Southlake was the only project to break ground this quarter in the Tarrant County market. Completions yielded 870,000 square feet at 28% preleased, distributed across Richardson/Plano, Las Colinas, Far North Dallas and Lewisville/Denton.
Matheny generally sees Fort Worth’s downtown as a stable market, but it has been dragged down a bit by vacancy caused by Pier 1 in the Pier 1 building.
“The whole [Fort Worth] market was negative 409,000 square feet absorption. I think a big chunk of that was Pier 1 obviously. I think they vacated some of their remaining space,” said Matheny.
“Then, I think there were maybe just a handful of class B buildings in the downtown area. The rest of the market was just barely negative or even slightly positive. I think, again, that message of stability has shown up there in Fort Worth,” he said.
While the office market remains a question mark during the pandemic, that’s not the case in the industrial market, which has remained strong.
According to Transwestern’s 3Q report, surveys of logistics managers indicate that available warehouse capacity continued to decrease as e-commerce demand remains strong. So far, managers believe demand will continue through 2021.
“When you look at the pace of the market comparing to previous years, we’re on pace this year and really what’s driving that is just the demand for e-commerce users, that last mile distribution,” said Matheny.
Matheny said their research noted that smaller industrial space users are still likely to either sign short-term extensions or doing a renewal.
“They haven’t been really inclined to be moving in a new space right now, which I think makes sense,” he said.
Three of the notable lease transactions for the quarter were around the Dallas Fort Worth International Airport.
Shipping company Uline leased 1.1 million square feet from Trammell Crow at New Passport Park 1 at the DFW Airport and Uline also leased 494,238-square feet from Dalfen Industrial at New I-35 Logistics Crossing A also at DFW Airport. HelloFresh leased 374,812-square feet from Bandera Ventures at the New Gateway Logistics Center at DFW Airport as well.
Fort Worth, Matheny said, has some great industrial attributes that keeps the industrial market strong.
“You got phenomenal logistics, infrastructure in terms of transportation, tons of interstate highways, rail, obviously air access with DFW and Alliance Airport,” he said. “I think especially, too, in Fort Worth, you’ve got that depth of blue-collar labor pool that’s just so important for industrial users. There’s an ability to continue serving those types of workers with housing and schools and choices that in some places in Dallas, it gets a little expensive to do that. I think that’s going to be really what keeps Fort Worth moving ahead going forward.”