New supply is arriving, but market still tight

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According to JLL’s recently published office statistics, 2014 was a banner year in North Texas.  Below are several key trends driving the market, but for a complete copy of the firm’s fourth quarter statistics, click here.

Construction deliveries outpace demand in latest quarter

  • In 2014, 2.6 million square feet of new office construction was completed, which outpaced the 2.3 million square feet of positive net absorption. This increased the total vacancy to 19.4 percent, a modest 30-basis point rise from last quarter, but still lower than year end 2013. Importantly, this vacancy rate is extremely low by historical standards. Demand for space remains high with majority of the leasing activity taking place in CBD, Far North Dallas and Las Colinas. The current 5.2 million sf pipeline is significant, but with 74.6 percent preleased due to several user-occupied buildings, we expect market fundamentals to remain tight for the foreseeable future.

Upward pressure on rates impacting almost all submarkets

  • Despite the slight uptick, the generally lower than average rate has put strong upward pressure on rents for almost all of the submarkets. The tighter, consistently in-demand submarkets, like Preston Center, Uptown, and Far North Dallas are seeing the most pressure. Rising rates have pushed some tenants to lower priced submarkets. The Shackleford law firm, for example, sighted increasing rates as a primary reason for its pending move from Uptown to neighboring N Central Expressway. With continued strong demand and a reasonable construction pipeline, we expect rents will continue to increase over the foreseeable future.

Drop in oil prices raising concern for energy sector which has sizable presence throughout Texas

  • The recent drop in oil prices has raised concern for the Texas economy and energy-heavy markets like Houston and Fort Worth. We expect Dallas to be only modestly impacted, resulting in slightly slower growth after the current sector shock wanes. This is because Dallas has much greater economic diversity in key growth industries beyond energy. Overall optimism for the local economy and office market also remains high due to steady job growth (111,900 positions in the last year), which has been fueled by continued corporate expansions and relocations.

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