DALLAS-Coast to coast and border to border, business hubs brace for the worst third quarter in a decade. Dallas-Ft. Worth is right up there, recording the highest available sublease space in the nation, says Grubb & Ellis Co.’s Dallas research team.
It’s a repeat of the early 1990s, concur three veteran DFW executives whose expertise lies in the office leasing and development arena. The DFW is pushing eight million sf of sublease space across the board and another 350,000 sf reportedly is coming to market in the hard-hit, high-tech Telecom Corridor, Jim Lob, Grubb & Ellis senior vice president, tells GlobeSt.com. Just in Q3, 1.22 million sf was added to the sublease roster. Meanwhile, there’s another 39.2 million sf vacant from one end of the metroplex to the other.
The preliminary Q3 tabulations brought some surprises for the veteran Lob. “I did not think we would see significant adjustment in class A,” he says, reporting rent drops and vacancy hikes across the entire metroplex.
It’s been a rough year nationwide in the office market, with most brokers simply adjusting the best they can to dramatically changing conditions. Lob’s research department says brace for at least another hard six months. And unless construction tapers off, it’s sure to remain a tenant’s market for at least another year.
John Aldrich, president of Colliers International’s Dallas office, and Mark Dickenson, senior vice president of Cousins Properties in Irving, agree wholeheartedly with the assessments of Lob and the Grubb & Ellis research department. Clients want to maintain “business as usual,” but there’s also a prevailing “wait and see” attitude that’s bringing more renewals–and not cutting into absorption–from the region’s larger companies, the names that make DFW stand out from its counterparts nationwide. Aldrich says he’s found that plans in the works prior to Sept. 11 are slowly pushing forward whereas new projects, new ideas are stalled.
The renewals, though large, are merely allowing the DFW region to tread water, says Aldrich. The giveaways are driving the undercurrent, with some building owners going beyond luxury cars, free rent and exotic trips and now offering extra broker’s commissions to keep tenants.
Dickenson reports increases in the number of large office users signing short-term leases in anticipation of a market correction being right around the corner. He says Cousins Properties is still getting a fair amount of calls, unlike some brokerage firms that are reporting no rings for an hour or more. Decisions are being made and deals getting done–it just takes longer. But, he’s optimistic the 2002 start will bring a positive change.
Aldrich, on the other hand, says it could take until Q2 2002 before there’s any relief for building owners. “Tenants haven’t seen a market swing their way like this for 10 years,” he adds.
The telling is in the hard and cold facts. Grubb & Ellis’ Q3 report is the first to roll out for the DFW market. The Dallas CBD has about 8.6 million sf of available office space in its near 30 million-sf inventory; Ft. Worth’s CBD, roughly 1.5 million sf of a little more than nine million sf. Nearly 29 million sf of suburban office space is vacant in a 140 million-sf inventory. Factor in the nearly eight million sf of sublease space and there’s a total glut of about 47.2 million sf.
Grubb & Ellis pegs the Dallas CBD vacancy at 28.9%; Ft. Worth CBD, 17%; and the suburban market average, 20.6%. The region’s highest are Lewisville-Denton, 38.1%, and North Ft. Worth, 40.7%. “In my eight years in the business, this is the largest single quarter spike in vacancy that I have ever seen,” concludes Grubb & Ellis’ Robert Kramp, who collates the data.
Dallas CBD’s class A space is going for $23.43 per sf and class B, $17.68 per sf. In Ft. Worth, class A is drawing $23.97 per sf and class B, $16.87 per sf. The suburban market average is $24.15 per sf for class A and $18.66 per sf for class B.
Absorption simply bottomed out as tenants abandoned space in 12 of the 17 submarkets, say researchers. Far North Dallas accounts for the largest amount of negative growth, 564,949 sf, coming at a time when there is another three million sf being developed for a near 23 million-sf inventory. The LBJ Freeway is showing a negative 507,534 sf; Richardson-Plano, negative 302,937 sf; and Stemmons Freeway, a minus 270,336 sf. Overall, the CBDs and suburban markets are in the red with nearly two million sf at the Q3 close.
Still to come is some 8.3 million sf that’s under construction, of which 1.4 million sf broke ground as planned in the third quarter. Pre-lease commitments are averaging between zero and 33% on the spec construction, according to the Grubb & Ellis team. And the bottom line, say the researchers, is that the mercury’s rising dangerously high.