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DALLAS-The Dallas-Ft. Worth office market is looking grimmer with each passing day although area executives cling to the positive. Sublease space has spiked 1 1/2 million sf in the past quarter, with statisticians now saying the grand total is eight million sf or more than double the norm for the region.

Free rent is commonplace and practically a given, says Jim Lob, senior vice president of Grubb & Ellis Co.’s Dallas team. “The one trend, that’s absolutely a fact today that reminds me of the mid-1980s, is the prevalence of free rent associated with nearly every single office transaction,” he tells GlobeSt.com.

Those sitting at the bargaining tables know all too well what’s happening in a market with an estimated 180 million-sf office inventory. Greg Biggs, Julien J. Studley Inc.’s senior vice president and southwest region manager in Dallas, says the trend he’s seeing these days is a restructuring of leases to make it more affordable in the early years. “There’s still activity in the marketplace, but what you don’t have are businesses expanding,” he assesses. “This market is a function of the economy.”

Numbers vary somewhat from report to report, but few would dispute that the prestigious Telecom Corridor is on a fast-track to becoming one of the hardest hit submarkets. Current vacancy is between 17.4% and 20.5%, according to reports by Grubb & Ellis and Julien J. Studley. Grubb & Ellis says the high-tech playing ground had 272,937 sf in negative absorption just in the third quarter. What will happen in the fourth quarter is anybody’s guess, but right now the Telecom Corridor is being outpaced in the third quarter by Far North Dallas, with a negative 564,949 sf, and the LBJ Freeway, a backslide of 507,534 sf.

The Dallas CBD, with a 28.9% vacancy, fell into the red by 85,670 sf for a year-to-date total of 192,192 sf. Ft. Worth’s CBD, bearing a 17% vacancy, is down 22,313 sf, but still registering on the barometer’s positive side for the year. Lob is quick to point out that Dallas’ superstar CBD properties are nearly filled to the brim. “They’re always leased and always achieve a rental rate delta,” above and beyond the traditional class A offering, he says.

Negative class A absorption is prevalent in 10 DFW submarkets, while half reported positive increases in class B space–a market driver as building owners cut some of the best breaks in recent years. The trend, says Grubb & Ellis’ team, signifies “tenant demand for less expensive, lower profile buildings. This trend also has manifested itself in sublease space availability.” Researchers say 63% of their eight million-sf sublease bottom line lies in class A buildings.

Aftershocks of Sept. 11 seemingly haven’t sent tenants scrambling to suburban offices in a mass exodus from the glass-and-granite high-rises that are so much a part of the DFW cityscapes. “Companies have refused to let these recent events dictate movement from premium office space in high-rise buildings to less attractive options elsewhere,” says Biggs.

The immediate reaction to Sept. 11 was beefed-up security. The long-term result could spell increased operating costs, but for now that’s not hit the charts, Biggs says. Some building security forces require visitors to leave driver’s licenses in order to gain entry; others issue card keys for upper levels; and most restrict ingress and egress patterns. “I believe people will put up with a little more inconvenience to feel safer,” he says.

The prevailing attitude in recent months is to re-sign. Biggs says the delayed recovery could in effect spell downsizing, but at least staying put in the same building.

Construction has fallen to 5.1 million sf, but only 27.5% is pre-leased, say Grubb & Ellis numbers crunchers. Preliminary estimates about the amount that was under construction were scrubbed and sanitized, with Grubb & Ellis calling every market and “every single building owner to see if they have steel coming out of the ground,” says Lob. The result came in lower than most thought it would, delivering a brief respite in a market with an overall direct vacancy of 20% plus, depending on the research team.

Metroplex class A rent ranges from $13.94 per sf in the ever-struggling Southwest Dallas to a high of $27.87 per sf in Dallas’ Uptown-Turtle Creek area. The Dallas CBD class A space is bringing $23.43 per sf while Ft. Worth is fetching $23.97 per sf, according to Grubb & Ellis. Class B Dallas space is now $17.68 per sf while Ft. Worth’s overall average is $16.87 per sf. Marketwide, class B rates range from $13.07 per sf in South Ft. Worth up to $20.96 per sf in the high-demand Preston Center in North Dallas.

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