DALLAS—With the first quarter in the record books, the Dallas office market looks to be in good stead. GlobeSt.com's Anna Caplan recently caught up with Kurt Cherry, executive vice president at PM Realty Group, to find out more.

GlobeSt.com: How does the state of the Dallas office market currently compare to 12 months ago?

Kurt Cherry: The Dallas office leasing market has experienced a dramatic increase in activity compared to a year ago, with leasing demand being fueled by company expansions and an increasing number of corporate users relocating to the area.

Driven by strong employment gains exceeding the 4 percent mark, the DFW office market has accelerated with nearly 4.7 million square feet of direct-net absorption in the trailing 12 months – which is its largest annual gain since 2001. The Dallas area has remarkably captured nearly 88 percent of the absorption gains seen in the DFW Metroplex…As a result of the solid demand, asking rental rates for existing class A office buildings have jumped by 4.6 percent or $1.10 per square foot to $25.12 (gross), reaching a record high.

GlobeSt.com: What must happen to keep the Dallas office market moving in a positive way?

Cherry: A healthy national economy is key for Dallas to maintain its positive momentum. Barring any catastrophic event, the national economy will continue its expansion and Dallas will directly benefit as it will remain one of the most attractive markets for expanding and relocating businesses in the country. 

GlobeSt.com: How will future development impact Dallas office market fundamentals?

Cherry: Office market fundamentals will continue to improve but market-wide occupancy levels will begin to level off as new supply catches up with demand in the next 12 to 24 months. Build-to-suit developments currently account for one-fourth of the construction under way, and their delivery will spark some sizable move-outs as companies consolidate into this new space. With an increase number of speculative projects breaking ground, this may also cause some fluctuations in vacancy as new supply may begin to outstrip demand beyond 2015. With new space coming online, asking rental rates will continue to increase at a healthy pace with no sign of slowing down.

GlobeSt.com: What Dallas office submarket do you expect to see the most growth in the next 12 to 24 months?  Why?

Cherry: Much of the Dallas office development pipeline is concentrated along Dallas North Tollway near the Hwy 121 corridor. Attractive area amenities coupled with a strong demographic base have lured many office developers to Far North Dallas. Developers have also found the Uptown/Turtle Creek submarket appealing because of the ability to live, work and play nearby – which is attractive to the millennial work force. Office development can be used as a significant indicator of the areas that will experience the most growth in the next 12 to 24 months.

The Dallas CBD is repositioning itself into a more pedestrian-friendly submarket, with numerous renovations and conversions under way. Most notably, 1600 Pacific Ave is being renovated and converted into a hotel and 1401 Elm St is being redeveloped into multi-family. In addition, Hall Financial Group has a 450,000-square-foot office building under construction, and a number of large multifamily projects are under construction or slated to begin construction in the coming months.

GlobeSt.com: What business sectors do you expect to have the largest impact on the Dallas office market in the next 12 to 24 months?  Why?

Cherry:  Strong employment gains are expected in the professional and business services, technology, health care, and leisure and hospitality sectors resulting from corporate expansions and relocations into 2016. Many companies, such as Liberty Mutual, Toyota and CoreLogic, have recently made announcements to expand within the next 12 to 24 months, which has helped fuel job growth and leasing demand. The business-friendly aspects of the North Texas will continue to charm major corporate tenants, and the attractive population growth expected will further add to a pipeline of qualified workers ready for work.

GlobeSt.com: What about the Dallas office market keeps you up at night?

Cherry: The diverse composition of the Dallas economy has helped the office market continue to grow at a fast pace even as low oil prices have placed downward pressure on the Texas economy. Strong market fundamentals will likely lead to higher valuations for office properties in 2015. Therefore, owners and property managers will need to remain watchful in managing property tax increases to maintain a competitive edge in the market.