A bump in year-end leasing boosted Dallas-Fort Worth’s office occupancy after losses earlier in 2023.
Big office deals signed in the last three months of 2023 pushed net leasing in North Texas to a positive 396,781 square feet for the year, according to preliminary data from commercial property firm Transwestern.
The largest leasing totals were in Dallas’ Uptown-Turtle Creek area and downtown.
“There was a good mix of everything from small tenants to large corporations taking office space in newer buildings,” Transwestern research manager Andrew Matheny said. “It’s gotten kind of lost in all the negative news about the office market.”
The office building sector has suffered substantial setbacks since the pandemic as employees have been slow to return to the workplace.
Office vacancy rates in North Texas soared as companies dumped millions of square feet of excess building space on the market. More than 11 million square feet of sublease office space was available at the start of 2024.
Companies signing major leases in the fourth quarter included Merit Energy, Liquid Agents Healthcare, Learfield, Thompson Reuters and Alcarity — all of which helped boost D-FW’s office occupancy, according to Transwestern.
Counting sublease space, more than 26% of North Texas’ office space was empty at the end of the year.
Removals of big blocks of offices from the market for other uses also helped keep vacancies from rising even higher. Developers and investors are converting office sites into new housing and industrial space.
“I was surprised when I went through and counted all the projects,” Matheny said. “About 3.6 million square feet of office space has been taken off the market.”
And at least another 2 million square feet of D-FW offices are being eyed for potential conversions or demolition, he said.
“These conversions, along with job growth, will allow occupancy to rebound in the next cycle,” Transwestern researchers predict. “DFW’s growth has attracted capital to convert or demolish obsolete inventory.”
Dallas-Fort Worth has been the country’s top job creation market in the last five years with a more than 600,000 gain in employment. Almost 140,000 jobs were added locally in the 12 months ending with November.
“Office vacancy will climb in 2024, but D-FW will outperform large metros,” according to Transwestern.
At the end of 2023, almost 5.4 million square feet of new office space was being built in North Texas — most of it in the Uptown-Turtle Creek area and in Frisco.
“We had a couple of late groundbreakings in 2023,” Matheny said. “About 50% of the construction here in D-FW is for large financial firms.”
Office projects are being built for Goldman Sachs, Wells Fargo, Bank of America and TIAA.
“We are expecting about 1 million square feet of building deliveries in the first quarter of 2024,” Matheny said.
Higher interest rates and tighter lending have quashed many speculative office developments.
Average office rents in D-FW have continued to edge higher, even with the largest amount of landlord concessions since the 1990s, according to Transwestern.
North Texas office rents are almost 15% ahead of where they were in early 2020.
“Landlords are still netting higher effective rent than they did before the pandemic,” Matheny said. “Dallas is one of the few markets where that is true.”
