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Walt Bialas: DFW’s Office Market—Where Do We Go From Here?

In the last year, average Class A rents are up 5.5 percent, with some locations outpacing this growth rate. The upward rent pressure is also so prevalent that well-located Class B properties, especially in the urban core, are beginning to fetch rents comparable to some lower-A assets.
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Walter Bialas
Walter Bialas

Although the news hasn’t changed much in the last several quarters, it remains relevant because it is what is currently shaping the DFW office market. These dynamics are driving our rent gains across submarkets. For example, in the last year, average Class A rents are up 5.5 percent, with some locations outpacing this growth rate. The upward rent pressure is also so prevalent that well-located Class B properties, especially in the urban core, are beginning to fetch rents comparable to some lower-A assets.

 So, the question arises around the coffee machine almost daily: Where do we go from here? Well, in past boom periods, we saw this kind of growth toward the end of the cycle. What is different this time is that we are in the midst of the expansion period. Although no one’s crystal ball is perfectly clear, the consensus is that we have at least a few more years left before we see any kind of slow down. That means we should be seeing decent rent gains for some time.

These rent gains are also what is fueling today’s office construction. We are seeing tenants very interested in the new space—and willing to step up to higher rents. In fact, based on our market intel, 61 percent of the space currently under construction in Dallas is pre-leased or a build-to-suit (like Toyota). This broad level of interest is on par with the in-demand “downtown” submarket, and where top-end rents in the new properties are in the high-$40s to low-$50s on a full-service basis.

In the urban core, these rents are causing some existing buildings to consider how they reinvent themselves to remain competitive and maximize rent growth. Let’s call it a “recalibration.”

We delved into this emerging trend in our recent Skyline report, where owners are proactively repositioning better, older assets through strategic capital improvements to common areas and tenant spaces, and also finding way to provide higher parking ratios to meet the needs of today’s user. From a management perspective, these types of considerations are critical in maintaining an asset’s competitive position—both to get tenants to consider your space and hit your rent potential.

Walter Bialas is director of research for JLL in Dallas. Contact him at [email protected]

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