The Metroplex Office Sector Holds Steady

The Dallas-Fort Worth office market has stayed on track during the first nine months of the year and continued to rank high nationally, according to Yardi Matrix information. However, its supply pipeline contracted, in line with the national office building trends, as financing and construction headwinds curbed new projects.

Recently, the Dallas City Council approved the conversion of 300,000 square feet of office space at the Bank of America downtown tower into a hotel, according to MSN. Redevelopment plans also include stores and restaurants on the 1.8 million-square-foot building’s ground floor. The institution also agreed to allocate up to $103 million from the tax increment financing package to support the project.

Meanwhile, the Metroplex office vacancy rate showed signs of improvement as of September, with office visits only 15.4 percent below the 2019 figures. Investment sales also performed well, prices outperforming national averages.

Development pipeline shrinks, still ranks high

Dallas-Fort Worth’s development pipeline at the end of September reached 2.6 million square feet, ranking third nationally, according to Yardi Matrix information. Boston (4.5 million square feet) and Manhattan (3 million square feet) rounded out the top three.

The pipeline volume represented 0.9 percent of the total stock. When also taking into account planned projects, the market’s share reached 3 percent of stock. Peer metros Houston (2.1 percent) and Phoenix (1.2 percent) lagged behind.

In June, Kaizen Development Partners started construction on Chalk Hill, a $370 million mixed-use project in Uptown Dallas that will comprise more than 400,000 square feet of office space. The development’s workspace tower will rise 22 stories and have floorplates ranging between 25,000 and 26,000 square feet.

In terms of office completions, Dallas-Fort Worth saw 1.4 million square feet coming online across 12 properties. This accounted for 0.4 percent of its total stock and marked a 26.5 percent decline year-over-year.

One of the delivered projects was the mixed-use 23Springs campus, also in Uptown. Developed by Granite Properties and Highwoods Properties, the complex comprises a 625,115-square-foot office tower and two freestanding restaurant buildings, as well as a half-acre park.

Asset prices outperform national figures

Dallas-Fort Worth’s office sales volume occupied a top position nationally, Yardi Matrix information shows. The metro registered $2.2 billion in assets changing hands; only Manhattan ($5.5 billion), the Bay Area ($4.3 billion) and Washington, D.C., ($3.2 billion) surpassed it.

Assets in the Metroplex office market traded for $296 per square foot on average, $101 above the national threshold. Phoenix ($178 per square foot), Atlanta ($147 per square foot) and Houston ($95 per square foot) registered lower prices among peers. Manhattan ($530 per square foot) continued to have the priciest properties across the U.S.

In the largest transaction in the metro year-to-date as of August, Cousins Properties paid $218 million for The Link, a 292,000-square-foot lifestyle office building in Uptown. Kaizen Development Partners sold the 25-story tower that came online in 2021.

Less available office space in DFW

The Metroplex office vacancy rate clocked in at 22.2 percent at the end of September, down 60 basis points over the year. However, the index remained considerably higher than the 18.6 percent national average.

Peer metros Austin (27 percent) and Denver (23.5 percent) had more available space. Phoenix (17.6 percent), Atlanta (19.9 percent) and Houston (20.2 percent) were at the other end of the spectrum.

Dallas’ listing rate as of the same month was $32.4, close to the $32.8 U.S. average value. The market’s figure was 5.8 percent higher year-over-year.

In one of the market’s largest new leases, Scotiabank expanded its U.S. footprint by committing to 133,000 square feet at Victory Commons One, a 364,530-square-foot office building in Uptown. Developed by Hillwood Urban in partnership with Affinius Capital, the 15-story property came online in 2022 featuring 33,000-square-foot floorplates and some 12,500 square feet of retail.

Coworking sector remains strong

Dallas-Fort Worth’s coworking inventory at the end of September clocked in 5.8 million square feet, spanning 310 locations, according to CoworkingCafe. This represented 2 percent of the market’s total office stock. Per comparison, Miami (4.1 percent) ranked first in the nation for share of coworking space out of office stock.

In terms of square footage, Chicago led the U.S. with 8.7 million square feet across 308 spaces. Los Angeles (7.2 million square feet) and Washington, D.C., (7.1 million square feet) followed.

Regus remained the shared space provider with the largest footprint in Dallas, with 37 locations totaling 633,849 square feet. Lucid Private Offices (443,583 square feet) and HQ (346,376 square feet) rounded out the top three.