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[IMGCAP(1)]DALLAS-Rosy first-quarter reports, now hitting the streets, are a quick refresher course that statistical data isn’t real-time reality. Local reports show rent is up and so is absorption, but brokers on the streets will attest that first quarter action been somewhat slow.

“With the anticipation of recession, everyone at C-level took a step back. It was a hiccup in the decision-making process,” Dale Ray, managing director in Dallas for Chicago-based Jones Lang LaSalle, tells GlobeSt.com. “We’re actually starting to see companies take action and sign. We’re now seeing progress in deals getting done.” He believes the uptick will continue or at least hold steady for the rest of the year.

The sudden spurt most likely is a “false start. There’s definitely a false sense of security out there,” says Greg Bennett, vice president and research director for Dallas-based Swearingen Realty Group LLC. “From a landlords’ perspective, they have to have a positive outlook. There are definite opportunities for tenants coming and it should show pretty soon.”

But for now, the Q1 analysis shows some cause for optimism, a much-needed respite from the gloom and doom of national reports for the industry and economy alike. The Stemmons submarket, long downtrodden due to a road project, led the market in absorption with 248,268 sf. However, its 9.44 million sf of buildings are still shouldering a 34.1% vacancy. Class A rent averages $17.73 per sf and class B is ringing up $14.52 per sf. The pocket has 112,144 sf of sublease space and 3.1 million sf of open direct space. As would be expected, there were no deliveries and no starts in Q1.

According to JLL’s research, Greater Dallas absorbed 579,704 sf in Q1. The 150.7-million-sf inventory is 23.85% vacant. The suburbs overwhelmingly control completions, construction and sublease space. In Q1, there were 2.8 million sf under construction, 2.42 million sf of sublease and 768,736 sf in completions.

“The underlying pace of transaction volume was surprisingly better in first quarter 2008 than we anticipated,” Ray says. “With an equal pace continuing throughout the year, the market should see office vacancy just below 20%.”

Last week’s US Census count also offered a glimmer of hope, according to Ray. Dallas leads the nation in population growth, which eventually will translate into more office and residential space.

Until the nation’s economy perks up, Ray predicts Dallas rents will slow down in some markets and toe the line in others. He’s also predicting “concessions will continue to decrease.”

[IMGCAP(2)]Bennett doesn’t dispute that absorption was solid in Q1, but he’s confident concessions are going to climb as will sublease space later in the second quarter. He will start collating data next week for a Q1 report, which will give the lay of the land from the tenants’ side.

Bennett says the big question is the impact on the office sector from give-backs by companies of all types related to the residential sector. Fort Worth is waiting to see what DR Horton Inc. will do with its 160,000-sf headquarters in City Center Tower II at 301 Commerce St. Dallas already has been hit by Centex Corp., which has more than 100,000 sf on the sublease market in Uptown. Still to come is a decision by the Calabasas, CA-based Countrywide Financial Corp. about its many locations not just in Greater Dallas, but all around the state.

As the region waits to see the full impact from the residential fallout, Bennett says Downtown is poised for a sharp drop in absorption because new buildings in Uptown are raiding its ranks. He believes Downtown will dip into the red for absorption by year’s end or early 2009 due to shifting tenants who are leaving behind class A blocks from 48,000 sf to nearly 450,000 sf. And, he says there’s no preventive medicine “unless there’s another Comerica out there that comes in very quickly.”

As a result, Bennett believes rents will stabilize or possibly drop and concessions like tenant improvement packages will increase and free rent return to the bargaining table. He says the $1 per sf to $3 per sf rent hikes that become commonplace last year resulted from out-of-state US and foreign investors who perceived Dallas’ rates as too low in comparison to its metro peers.

“If landlords want to get their buildings filled, they are going to have to give up some concessions,” Bennett says. “The tide is slowing turning in the tenants’ favor again with the economy and the shape it’s in.”

Jones Lang LaSalle tracks the Dallas CBD and its suburbs, not venturing into Fort Worth or its immediate neighbors. However, Ray says the plan is to add Fort Worth to the list this year. Also, JLL’s team monitors only multi-tenant, class A and class B buildings, 15,000 sf or larger. And, it only includes tenants who have moved into their spaces, setting up a scenario that some 2007 signings didn’t make it into the numbers until Q1 2008. Ray says that is done so space being vacated can be included in the analysis. Parameters vary by brokerage house so they are key to understanding the findings.

In the CBD, absorption totaled 132,441 sf. The 24.18-million-sf inventory is 23.98% vacant. Rent averaged $21.09 per sf in class A stock and $14.83 per sf for class B buildings. There is 17,454 sf of sublease space and 5.78 million sf of open direct space. And, there were no completions and no buildings under construction.

Oak Lawn/Uptown’s 8.4 million sf’s 9.69% vacancy is the lowest of JLL’s nine submarkets. But, its absorption was in the red, down 54,882 sf from a year ago. Class A rent averages $32.03 per sf; class B, $22.71 per sf. There is 130,828 sf of sublease space and 683,593 sf of direct space on the market. No buildings delivered in Q1, but there is 1.95 million sf pushing out of the ground.

In Preston Center, vacancy is 12.69% in a 3.41-million-sf stock. It too fell into the red in absorption by 23,027 sf. Class A rent averages $31.59 per sf; class B, $25.90 per sf. The prestigious pocket has 76,709 sf of sublease space and 356,747 sf of open direct space. Again, there were no deliveries, but there is 140,047 sf rising.

In the suburbs’ big picture, absorption rang up 447,293 sf. The 126.5-million-sf inventory is 23.82% vacant. Class A rent is fetching $24.65 per sf and class B is getting $18.96 per sf, on average. Open direct space totals 27.7 million sf.

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