Thank you for sharing!

Your article was successfully shared with the contacts you provided.

DALLAS-There’s no quick fix in sight in Dallas-Ft. Worth, where sublease space has reached at least a five-year high, posing a threat to direct space lease-ups in the office sector. Those in the know say it’s still not time to panic.

Bob Gibbons, Dallas’ regional managing director for Chicago-based CMD Realty Investors, points to the region’s 15-year track record as proof. Overall vacancy currently is riding at 17%, four points below 1995 and a whopping 14 under that killer year of 1987, he says. “We have a long way to go before getting anywhere close to the 1980s,” he tells GlobeSt.com. “The panic that seems to be portrayed in certain media outlets is not very well founded.”

CMD Realty actually is experiencing a stellar year in a dim economy. Gibbons predicts more than 500,000 sf in CMD’s 2.8-million, 18-building portfolio will be leased before the year closes. Year to date, 306,000 sf has been signed, of which 37% represent new deals. He admits that new deals have slipped 2% from the prior three years, but still they’re still coming.

Available sublease space and its impact on the market is such a hot topic that Grubb & Ellis Co.’s Dallas research team decided it was time to take a long, hard look at the issue. The pressure’s on property managers and building owners, say researchers in their first sublease space report. The Richardson-Plano submarket, home to the famed Telecom Corridor, is bearing a 14.7% vacancy, up 3.8% just since the end of March. And word has it that it’s going to climb even higher before all is said and done.

At the Q2 close, sublease space totaled 6.3 million sf. War games are being played to find and sign tenants in the 179 million sf of inventory that’s being tracked. Everyone knows the market has slowed, concessions are givens and rents are lower. “But, it’s certainly not a crisis,” Kyle Pratchett, Grubb & Ellis research analyst, tells GlobeSt.com. “It’s a tenants’ market and it’s probably going to be a tenants’ market for the next two years. But, brokers still have a great opportunity to do well in these times.”

The primary concern today is that sublease space is “cannibalizing” direct space, says Pratchett. More than 60% of the 6.3 million sf in sublease inventory is available in blocks of less than 10,000 sf, ideally suited to small companies that traditionally watch the checkbook.

In the next six months, leases expire for more than 1,000 tenants, representing 2.8 million sf. In a year, that will climb to 1,800 tenants and 4.4 million sf. The usual rule of thumb is 60% to 70% will stay put, but that may be changing. “It is reasonable to suppose that many of these companies will take advantage of sublease opportunities over the next two years, significantly increasing the amount of direct available space in the market and giving rise to new challenges for landlords, including probable downward adjustments in rents,” according to the report. Every six months, an average of 400,000 sf of sublease space will revert to direct space. Given that anomaly, it will take 36 months “even if none is absorbed” for sublease space to reach its three million-sf norm.

Changing market conditions have made the LBJ Freeway submarket one of the best deals in town after four years of negative absorption, says Gibbons. Vacancy is still falling between 17% and 18%, but a bright note came at the Q2 close with a slight positive absorption. Gibbons says building owners are to be thanked for aggressively reacting as the groundbreaking neared for the High Five in Five multi-level road project. The submarket’s average rent dropped 15% to 25% in six months, with a full-service lease now being quoted at $18.75 sf, he says. That’s $2.75 per sf less than what tenants pay in Far North Dallas. Tenants who fled as the project start grew closer are now “starting to realize the reality is it’s time to come back. It was the anticipation of the problem and not the reality,” Gibbons reasons.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.