3Q Brings Office Absorption Gains

 CHRISTINE PEREZ | D Magazine Real Points
October 20th, 2011 12:09pm

According to the research team at Grubb & Ellis Co., Dallas-Fort Worth office absorbed about 736,000 square feet of office space in the third quarter of 2011, more than half of the year’s total of 1.4 million square feet. The gains were largely felt in the Richardson/Plano/Allen submarket, where more than 577,000 square feet of space was absorbed. A huge chunk of that came from Fossil Inc.’s relocation to 901 S. Central Expressway in Richardson, where it leased 535,771 square feet.


According to Grubb & Ellis, North Texas saw its second speculative office project break ground since the downturn, a five-story, 60,000-square-foot Class A office and retail building in the Plaza at Preston Center in Dallas. The other 491,600 square feet of office space under construction comes from build-to-suits for EnCana Oil & Gas and Traxxas, as well as a speculative project in Rockwall known as Trend Tower.


Below are additional notes from the firm about third-quarter activity. For the full report, click here.


• The Dallas-Fort Worth office market vacancy rate decreased to 22.1 percent during the third quarter, down 40 basis points from the second quarter.


• The vacancy rate for the combined Dallas and Fort Worth CBDs dropped to 21.7 percent at the same time, down 20 basis points from the previous quarter.


• Class A properties experienced 411,004 square feet of positive net absorption during the quarter, while Class B properties posted nearly 300,000 square feet of positive net absorption.


• Quarter-over-quarter, average asking rental rates for the region’s Class A office market decreased $0.15 to $22.88 per square foot.  During the same time period, average asking rental rates for Class B office space dropped to $17.73 per square foot, a $0.02 decrease.


• Roughly 4.7 million square feet of sublease space was available at the close of the third quarter, an approximately 216,500-square-foot reduction from the previous quarter.  The inventory of sublease space has steadily declined and dropped 23.7 percent since its peak of 6.2 million square feet in 2009.


• In one of the largest sale transactions of the quarter, Royal Ridge Office Center, a two-story building including more than 505,000 square feet of office space at 7979 N. Belt Line Road in Irving, sold for $72.5 million.


Analysis and Forecast


The North Texas office market saw positive leasing demand that resulted in a decrease in vacancy and available sublease space on the market during the third quarter. The demand was a result of the employment generated in the Dallas-Fort Worth-Arlington metropolitan area during the 12-month period ending in August, when 50,200 jobs were added.


Over the next several quarters, vacancy rates should continue to trend lower and asking rental rates are expected to firm up.  With capital markets resuming some lending activities and pent-up equity ready to be spent, an increase in investment sales is expected in the near future.

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