North Texas office leasing and construction continues to rebound from the COVID-19 downturn.
At midyear, net office leasing in the Dallas-Fort Worth area totaled more than 2 million square feet — topping pre-pandemic activity as more workers returned from home, according to preliminary data from commercial property firm Transwestern.
More than 1.1 million square feet of net leasing was recorded just in the second quarter, with the strongest demand for office space in the Dallas North Tollway corridor in West Plano and Frisco, in Uptown Dallas and Las Colinas.
Office leasing declined from a year ago in downtown Dallas and along LBJ Freeway, Transwestern found.
“Although clouds of recession are appearing on the horizon, the office market is favorably positioned,” Transwestern researchers wrote in a just-released report. “Overall, the region’s fundamentals may limit the downside of a recession and lead to a faster recovery, as they have over the last 15 years.”
“We have been surprised at how quickly pent-up demand is leasing up new buildings and other high-quality properties,” said Transwestern research manager Andrew Matheny. “Companies that delayed decisions in early 2020 are returning to the market.
“We expect this pent-up demand to help offset slowing economic momentum through year-end.”
With the pickup in office leasing, rents are on the rise.
Quoted office rents in new construction close-in buildings are 9% higher year-over-year and are up 17% in pending suburban projects, Transwestern found.
“Average effective rent reached $33.93, or 9.1% above the pre-pandemic average,” Transwestern analysts report.
The highest rents are in Uptown, where annual rates are above $63 per square foot for the newest top-quality buildings.
“We are seeing Class A and B buildings post double-digit rent increases in response to rising operating costs, taxes and interest rates,” Matheny said.
Developers are doing their part to meet the increased demand for D-FW offices. Several new projects have kicked off just during the last two months.
Construction currently totals more than 7 million square feet. Most of the new offices are being built in the Uptown Dallas area (1.6 million square feet), along the tollway in West Plano (1.1 million square feet) and in the Las Colinas area (1.1 million square feet).
Even with the surge in leasing, the amount of surplus, sublease office space being offered for rent by businesses continued to grow in the second quarter. Almost 10.1 million square feet of sublease offices were being pitched to prospective tenants at midyear, Transwestern found.
“On a jobs basis, it has been surprising since D-FW has already recovered well past pre-pandemic employment,” Matheny said. “Sublease space is being absorbed, but companies are putting more space on market as financial conditions tighten.
“The net result has kept us at 10 million square feet over the past several quarters.”