The COVID-19 pandemic still had a stranglehold on the North Texas office market in the early months of 2021.
Net office leasing in the Dallas-Fort Worth area declined by another 2 million square feet in the first quarter, according to the latest data from commercial property firm Cushman & Wakefield.
The decline in office occupancy in the area came in spite of a recent uptick in building leasing activity.
The first-quarter decline comes on top of more than 4 million square feet of net office leasing declines in D-FW in 2020 as companies vacated large blocks of office space. The drop in office leasing in North Texas caused by the pandemic is the worst such downturn in decades.
Some of the biggest first-quarter office sector declines were in Las Colinas, the West Plano-Frisco area along the Dallas North Tollway and downtown Dallas.
Major tenant move-outs by Oncor Electric, retailer Michaels and UT Southwestern Medical added to the growing office vacancy rate in D-FW, which now tops 21%, Cushman & Wakefield researchers found.
“The increase in the vacancy rate in the first quarter of 2021 is a lagging indicator from the lack of transaction activity in 2020,” Cushman & Wakefield executive managing director Robbie Baty said. “It’s really a carryover from last year’s lack of activity.”
New office leases that businesses have signed in the last few months won’t be tallied until the companies actually move into the space.
“When we sign a deal, it’s sometimes six, nine months or a year in advance of the tenant moving into the space,” he said. “We might see another quarter of negative office absorption.”
During the first quarter, big office lease deals in D-FW were signed by tenants including Sourcepoint Mortgage, CarOffer and Jones Lang LaSalle Inc.
Baty said the surge in sublease office space in North Texas appears to have plateaued.
“For the last three quarters, the number of square feet of sublease space has remained flat,” he said. “The real spike happened second and third quarter of last year.”
About 9 million square feet of the surplus business space is on the market
“We have seen activity pick up across several submarkets, with inquiries, tours and proposals,” said Matt Schendle, Cushman & Wakefield executive managing director. “Additionally, we are very optimistic about the second the half of the year and 2022, with pent-up demand and inbound relocations.”
Office vacancy rates in the D-FW area have headed higher in the last year as the pandemic sent workers home. As of last week, only about 38% of area office workers were back in their buildings, according to the latest report by Kastle Systems.
The decline in office usage has put a flood of surplus business space on the market in D-FW, with more than 9 million square feet of office sublease space being offered to tenants.
Just over 5 million square feet of offices were under construction in North Texas at the end of the first quarter, Cushman & Wakefield estimates. Most of the new buildings are on the way in the Legacy business park and Frisco markets and Dallas’ Uptown district.
About a third of what is being built is already leased, according to estimates.
“We will see a few speculative building starts this year, but I don’t think you are going to see the same volume you did previously because of the hesitance in the development community,” Baty said. “We still have quite a bit of vacant space to fill.
“Companies are just now starting to get going again,” he said. “It’s not like there has been rush of demand for new space over the last year.”
