Dallas-Fort Worth Q2s Yield Some, But Not Many Positives

The facts of today's market is that everyone is talking about the trends. Some cuts are deeper than they've been since the late 1980s. There are no reports of "tiered" rents, but there are plenty of extensions or "renegotiations," many preceding expiration dates by two to three years instead of the market's 12-month norm. Quoted rates are being shaved at least 10% and as much as 20%. TIs are more often $30 per sf than not, with some scattered reports of $50 per sf to get the deal done. Free rent can go up to a year and there's more money available to buy out existing leases to sway a tenant to a new address. And yes, rent is still dropping, but the backslide has slowed considerably from the first quarter, one of the few positive signs coming out of the second quarter.

The reality is Q2 brought some sweet deals to the bargaining table, Greg Biggs, senior vice president and Southwest region manager for New York City-based Julien J. Studley Inc.'s Dallas office, tells GlobeSt.com. "I'm having an '80s flashback," he says of a market where building owners aren't taking "no" for an answer. "They continue to come back time and time again," he added. "It's a great time to be a tenant."

There are just enough bright spots to override concerns of a late 1980s rerun. "It is similar, but not as dramatic," explained Cynthia Jeter, director and senior manager in Dallas for Cushman & Wakefield of Texas Inc.

The numbers vary between the Studley and C&W reports, as they always will. But, what everyone wants to know is whether Dallas-Fort Worth, more specifically the Dallas CBD, is ready to start making tracks north instead of south.

Studley pegs the Dallas CBD's open spaces at 21.5%, with the division being about 4.7 million sf of direct space to 961,137 sf of sublease space. Like the first quarter, C&W clung to a 28.6% vacancy, of which 26.9% is direct space in the 29.5-million-sf inventory that its researchers say is available. For Studley, vacancy dropped about a point from its Q1 calculations.

In the Dallas CBD, negative absorption slowed to 29,500 sf in the second quarter and class A space remained 90% leased. "It may be an indicator that we have turned the corner," C&W director Daryl Mullin said at C&W's press conference yesterday at the Millennium Building in Addison. Unfortunately, there's no getting around the year-to-date negative absorption of 482,347 sf. Last year at this time, the CBD posted 477,908 sf to the positive.

Studley shows 38.7 million sf of vacant direct space and nearly 10.3 million sf of sublease space, taking the DFW market at large to 25.8% vacancy or a drop of nearly two points from Q1. The C&W numbers put overall vacancy at 24.8%, up one point from the first quarter; negative absorption above 1.6 million sf marketwide, an increase of about 400,000 sf from Q1; and new construction at nearly 1.4 million sf, most of which is rising in the North Dallas corridor. But, building owners stomped on the brakes to keep the class A rent decline to 16 cents per sf in comparison to 41 cents per sf in the first quarter, according to Studley.

The DFW market's overall stats clearly show the heat has been turned up in the suburbs. Vacancy hit 23.9%, up 7.3 points from 2001's midyear. "The landlords are trying desperately to hold their face rates," assessed J. Tracy Fults, C&W's newest Dallas director. "High-credit tenants right now can really write their own tickets," he said of a market where one out of every four floors is empty.

The suburban pipeline has about one million sf ready to sign, according to Fults. But, it's not a sign of new demand because the deals have been hanging around for a year. Anyway, the gain is sure to be offset by large blocks of sublease space that will be dumped on the market as direct space at the end of this year or early 2003. And the end result, Fults said, is "the competition is really going to get fierce before it's all over."