Office rents in Dallas-Fort Worth have continued to climb annually by 10.2 percent, placing it as the No. 3 market for office rental growth on JLL’s list of top 30 global business centers.
“Dallas is doing well and we will continue to see rents continue to rise,” Brooke Armstrong, a senior vice president at JLL’s Dallas office, told the Dallas Business Journal.“We are seeing a little bit of a pushback from tenants looking up and seeing $10 or more increases per square foot if they stay in their buildings and they are looking at options. But this is part of the cost of doing business and Dallas is very affordable compared to the rest of the country.”
With this real estate cycle, Dallas-Fort Worth has seen watermarks set for newly delivered office space in key submarkets, such as Uptown and Preston Center. In some cases, the new buildings are seeing prices in the low $50s per square foot.
Meanwhile, the average direct asking rent in Dallas is $25.94 per square foot, according to JLL’s latest research.
Armstrong said the office tenants she’s working with seem to be accepting of the higher lease rates, but ratcheting up rates more than 10 percent a year isn’t sustainable.
“There is potentially a little pause coming,” she said. “There is a gap of lease expirations that will pick back up in 2019 to 2020.”
So, why is there such a gap of lease expirations? Armstrong said it’s because of the ripple still being felt in Dallas from the big building boom in the 1980s in Uptown and downtown Dallas.
Then, there was a recession in 2008 that caused a plethora of one-year to three-year lease extensions.
“There is a development wave and, as such, we are also seeing a flux of expirations,” Armstrong said, adding she’s seeing the development cycle slowing as lenders slow the pace of lending for new projects.
Tenants are still attracted to Uptown, downtown Dallas and Plano’s Legacy Business Park for their ability to recruit and retain employees, she said.
And even though office rates have increased by more than 10 percent, Armstrong said it isn’t a bad time to be searching for new digs.
“The fundamentals are there — they may slow down for a minute, but there’s not going to be a big dip in rates like we saw in the last cycle,” she added. “There’s no reason to avoid making a decision now.”
For companies wanting a deal on their office space, Armstrong suggests heading to downtown Dallas, which is still going through “an identity crisis.”
With the influx of capital from real estate investors into older office buildings, coupled with the proximity to mass transit, Armstrong said tenants could get some good deals on some buildings.