DALLAS-With the curtain lowered on the first quarter, the Dallas/Fort Worth office market has stayed below 20% vacancy for the second consecutive accounting period. Upcoming deliveries are sure to bounce vacancy back over the high-water line, but the six-year milestone is a welcome respite for now.

“There is really good solid market information coming out of the first quarter,” Bo Estes, senior vice president of Grubb & Ellis Co. in Dallas, stresses to GlobeSt.com. He acknowledges that absorption had slowed in Q1, but that’s not unusual since brokers and companies historically use the opening months to map out their year. In the year-to-year comparison, though, the region was down 750,000 sf when measured against 2006′s Q1 absorption.

Digging into the numbers, Grubb & Ellis’ local research team recorded slightly more than 570,000 sf of absorption marketwide. The bulk of the leasing fell right in line with brokers’ projections in late 2006 that class B space was going to be in high demand because class A rates were rising.

“We think a lot of companies are going to be looking at class B as an alternative,” assesses Stephanie S. Seno, the brokerage house’s local research analyst. “And in the first quarter, there was a tremendous amount of growth in the class B area.” The numbers reflect a 20,000-sf uptick for class A absorption and a 500,000-sf gain for class B.

The top three submarkets were Richardson-Plano-Allen, where 205,000 sf was absorbed; North Arlington and North Grand Prairie, 133,319 sf; and Far North Dallas, 117,148 sf. In the Richardson-Plano-Allen pocket, the 12.7-million-sf inventory was 21% leased. In the Arlington-Grand Prairie area, the 4.2-million-sf inventory was 15.5% filled and Far North Dallas’ 18.5-million-sf stock was 18.4% occupied.

According to Grubb & Ellis, overall vacancy fell 10 basis points, with the quarter closing at 19.7% in the 178.2-million-sf inventory. The first-quarter gain shaved two points from 2006′s opening act.

“We had some new tenants coming in,” Estes says, “but generally speaking it was a lot of existing tenants retooling their existing leases.”

What does ring positive is the amount of interest in the region’s office space. “We are seeing a lot of activity from all different sizes and types of companies,” Estes says, “looking to do something this year or early 2008 to be in the market. We’re all extremely optimistic that 2007 is going to be as good, or better, than 2006.”

Grubb & Ellis research shows rents have ticked up steadily in the past year. The overall Dallas/Fort Worth average is $20.82 per sf, full-service gross. The quarter ended with the average rent 70 cents per sf higher than the 2006 close and $1.58 per sf more than a year ago. Class A rents jumped 67 cents per sf, on average, to close the quarter at $23.89 per sf, annual full-service gross. Class B averaged 71 cents per sf to hit $17.70 per sf. And if there’s a milestone to be found, it’s in the Uptown-Turtle Creek submarket, where the average climbed over the $30 per sf mark to ring up a $3.42 per sf gain in the past year. The Q1 average is $30.84 per sf, annual full-service gross.

Estes, like his peers, recognizes the one caveat to the good news: construction. Across the market, there is nearly five million sf being built, of which 2.3 million sf is all class A and class AA being added to Uptown-Turtle Creek’s 10.1 million sf. Estes points out, though, that “that area has always performed very well. The class A space is sitting just a little over 7% vacant.” In the Dallas CBD, Hunt Co. is building a 400,000-sf tower and Billingsley Co.’s debuting the 418,000-sf One Arts Plaza.

Overall, Estes says the fundamental upswings are cause to be optimistic, particularly with a giant like Comerica now searching for a headquarters spot in the Downtown in its bid to move from Detroit. The point men are Staubach executive vice presidents Carl Ewert and Larry Toon and CB Richard Ellis’ executive vice president Phil Puckett.

And, Estes says, there are some large pockets now and coming up that will clearly appeal to Comerica for its CBD search. The dissolution of the Jenkens & Gilchrist law firm and Hunt’s imminent relocation have opened up at least 300,000 sf in Fountain Place at 1445 Ross Ave. Likewise, there are prized banks to be picked up in the equally prestigious Bank One Center at 1717 Main St. On the bright side, Estes says “it’s creating some pretty major opportunities.”

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