Dallas Office Market Hits Best Stride in Three Years

"This is definitely the best year in three years and the best quarter in three years," Robert Kramp, director of national client services for Grubb & Ellis Co., tells GlobeSt.com. Grubb & Ellis, with numbers predicated on actual move-ins, pegs vacancy at 24.5% for Dallas/Fort Worth. Cushman & Wakefield of Texas Inc., also touting positive numbers, is showing 26.4% overall vacancy.

Kramp says the Q3 closed "stronger than we originally expected." Net absorption hit 938,742 sf to push the year-to-date tally to nearly 1.5 million sf in the 163.1-million-sf inventory.

Grubb & Ellis researchers show sublease is resting at 3% of the inventory, slightly below the historic norm. The latest count shows 5.3 million sf on the sublease market.

"Dallas will end the year on a positive note," Kramp says. "The third quarter represents a peak for the year in demand." The downside to the good news is the fourth quarter will be somewhat softer, but the upside is there will be more gain.

Still, it will take time before absorption trickles down to rents. "We don't expect rents to rise until mid-2005," Kramp says, adding the rates will stay stable to relatively flat until then. Grubb & Ellis research puts the weighted average rent at $18.91 per sf whereas C&W sets $17.48 per sf as its average.

Even the region's latest job growth numbers give cause for optimism. Kramp says the year-to-date total is just 23,000 jobs, but it equates to a 1.2% growth versus last year's negative 1.4%.

With the worst days now history, it's time to consider Dallas' history. The third quarter ended with 613,914 sf under construction, according to Grubb & Ellis. C&W's team calculates 888,981 sf is rising. In both cases, the under-construction space is moderate for North Texas developers.

"Whether this means more construction will start, all I can say is let the record speak for itself," Kramp asserts. "Developers have found every reason under the sun to build in Dallas."