DFW Office Market Report | Q4 2016

by CoyDavidson on February 13, 2017

Sales surge, rates rise, but absorption eases to close 2016

The fourth quarter of 2016 wrapped up a strong year for the Dallas-Fort Worth real estate market in terms of office sale activity, but moderate in terms of leasing.

After seeing over 6.4 million square feet of absorption in 2015, the highest in almost a decade – absorption slowed considerably in 2016, totaling just over 3 million square feet – less than half of the prior two years. (Gross absorption, the measure of total square feet leased and occupied not accounting for space vacated in the same market was higher than the prior year, indicating more space was vacated even though activity was strong.) Two factors may account for this: fewer deals coming from outside the DFW market and consolidation of tenants already present. Consolidation has been a theme as major companies move dispersed locations into newer offices and firms modernize their space, reducing the square footage per employee.

The year saw record prices for office sales. Sale prices in the Uptown submarket for 17Seventeen McKinney and 2000 McKinney both topped $500/sf – the highest seen for urban Class A office, and Legacy Tower fetched $400/sf – the highest ever for suburban office. 2016 was also the year of the sale-leaseback with State Farm completing the sale-leaseback of its CityLine operations center for $822 million, JCPenney selling its Legacy West headquarters for $353 million, and Verizon selling its regional headquarters for $344 million. With record-high sale prices, companies, such as Raytheon whose CityLine campus recently went on the market, are seeking to cash-in their valuable real estate assets.

A Look Ahead

  • Net absorption in 2017 should significantly outpace 2016 due to major move-ins including Toyota’s North American Headquarters, Liberty Mutual, TD Ameritrade, and McKesson. Toyota’s headquarters alone will account for 2 million square feet of absorption. Expect net absorption to exceed 2015’s level of 6 million square feet.
  • Average asking rates will level off toward the end of 2017 as the vacancy rate ticks higher and more product is delivered. Hard-hit markets such as Dallas CBD, LBJ Freeway, and Stemmons Freeway, which have vacancy rates close to or above 20%, will see falling rates and landlords investing in building improvements.
    Market Highlights
  • Although absorption was down, job growth remains steady in the Dallas-Fort Worth area and continues to outpace job growth in Texas and the nation. From November 2015 to November 2016, DFW added 114,800 jobs, a growth rate of 3.3%, outpacing Texas which grew at 1.8% and the U.S. which grew at 1.6% over the same time period.
  • Of the 5 million square feet delivered in 2016, approximately 30% was build-to-suit and 70% was speculative or only partially pre-leased. Spec multitenant buildings delivered in 2016 were 67% leased as of the end of the year.


The vacancy rate was flat at 15.5% from Q3 to Q4 and has held relatively steady throughout 2016. Year-over-year vacancy increased 0.4% from 15.1%. Class A vacancy decreased 0.2% to 16.5% in Q4 and Class B vacancy increased 0.1% to 15.5%.

Vacancy continued to rise in the Dallas CBD, increasing 0.4% to 23.8% overall, and 26.8% for Class A. Uptown/Turtle Creek saw a 1.4% drop in vacancy to 10.7% as tenants moved into space at McKinney & Olive. The North US 75 Corridor saw a 2% increase in Class A vacancy after Verizon moved its campus at 2400 Glenville.

New Supply, Absorption & Vacancy Rate


Overall net absorption for 2016 was 3,060,573 square feet, less than half of 2015’s absorption rate of 6,403,606 square feet. As job growth was still consistent, much of the lack of absorption could be attributed to tenants reducing the space per employee and using square footage more efficiently. Absorption will pick up considerably in 2017 as large projects in North Dallas are delivered; however, Dallas CBD will continue to see little to no absorption.

Las Colinas showed the highest level of absorption in Q4 with a total of 368,508 square feet bolstered by OneSource Virtual’s move into their 215,000 square foot headquarters. Northeast Fort Worth had the greatest negative absorption after Bank of America consolidated and moved from 431,579 square feet at 5401 N Beach Street.


Rates continued their climb in Q4, increasing 0.9% from Q3 to $24.55 overall. For Class A, rates grew 0.6% to $28.44 gross, and Class B rates rose to $28.84 in Q4 from $20.61 in the prior quarter.

After Class A rates topped $40 on average for the first time in Uptown/Turtle Creek, rates for that submarket held at $40.61 from Q3 to Q4. Preston Center’s Class A rates jumped $0.64 from Q3 to Q4, an increase of 1.7%. New Class A buildings are pushing rates higher as investors seek to recoup climbing construction costs and tenants seek amenities to attract a strong workforce.

While rates at the top are making headlines, there are still relative bargains in the premium markets for tenants who seek a premium location but are willing to office in an older building. Class A asking rates range from $19.75-40.00 triple net in Uptown/ Turtle Creek. Rates for Preston Center Class A spaces show a smaller range from $23 to $34.50 triple net.

 Click here to download the full report.

You might also like:

Get my posts via e-mail: here

Previous post:

Next post: