Patience Key to Dallas/Fort Worth Office Recovery

"Our road to recovery is not for the impatient ... that really says it all. I really believe that very strongly," says Jack Eimer, president of the central region for Transwestern Commercial Services. He tells GlobeSt.com that the first report of the year by Delta Associates, the independent research affiliate of TCS, shows "the recovery is gaining traction. Finally, the siphoning of jobs is coming to an end."

Eimer says Dallas/Fort Worth has made the final cut for several corporate relocations, industrial and office. There could be, he says, "some pretty exciting announcements in three to six months."

In the more immediate, rents are still flat, but concessions are considerably reduced from a year ago. "That's a powerful sign," Eimer says. "We are no longer seeing one year (free rent) for longer terms. It's three to six months now." He predicts rent will hold fairly steady and modestly improve in mid- to late 2005 followed by small but steady growth for the next few years. The class A average is just under $21 per sf, close to the same level as 1998. Class B rent averages a shade under $17 per sf.

"Before we start realizing dramatic gains in rent, we will have to get supply and demand closer in balance," Eimer says. "Then, we will see big pops. The same thing we saw in 1995-96 when rent popped 25% ... and for a very short window it becomes a landlord's market."

The overall vacancy in DFW is 21.9% versus 21.3% a year ago in an inventory of 239.8 million sf. Factoring in sublease space, the Dallas CBD registered a 27.1% vacancy in 38.1 million sf and Fort Worth's came in at 10.9% for a 10.9-million-sf inventory. The Dallas CBD's vacancy rose in the last three months to 26% from 25.7% while Fort Worth's dipped to 9.9% from 10.1%. Sublease fell 206,000 sf in Q1 to take the bottom line to 4.8 million sf in comparison to 6.6 million sf at the first-quarter close in 2003.

Absorption improved, but still stayed in the red by 138,000 sf overall. To no one's surprise, class B bore the brunt as tenants seized opportunities to trade up.

On the construction side, there is 2.7 million sf rising in the metroplex. By Delta Associates' calculations, 71% or 1.9 million sf is owner-developed or build-to-suits and 81% is pre-leased.

Despite the tepid showing, Eimer says "I wouldn't want to face these dynamics and these challenges in any other market but Dallas.