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DFW Office Market: 2016 Review and 2017 Preview

Written By Robbie Baty, Senior Director

MarketBeat ThumbnailWith 2016 in the rearview mirror and 2017 getting underway, it’s a good time to reflect on what went well last year in the Dallas-Fort Worth office sector and look forward to what lies ahead. As an ancient Greek philosopher once said, “Change in the only constant in life,” and that statement certainly holds true today.

Nationally, we had a big change, with the election season last year and the new administration taking office this month. Here in our Dallas Cushman & Wakefield office, we completed a merger with DTZ and moved to a new office building in Uptown—McKinney & Olive—in December.

As we assess where we’ve been and where we’re headed, here are some highlights from 2016, as well as some predictions for 2017, taken from our most recent DFW Office MarketBeat report.

 

2016 Highlights

Business Confidence Strong: In December 2016, the Dallas Fed conducted its annual Texas Service Sector Outlook Survey of local executives. The study found that executives are reporting strengthening revenue, increased optimism, and the index of future business activity (for next six months) is at an all-time high.

Tops in Job Growth: DFW posted the best job growth of all major metropolitan areas in the U.S. in November (3.3 percent). It is amazing how strong our job growth has been over the past few years.

Growing Local Businesses: In 2016, two-thirds of my local clients grew their DFW offices or opened new offices in the area. This is a solid indicator of the strong local economy and confidence in the region. Some clients, such as Jamba Juice, even chose to relocate their headquarters to the area because of their belief in North Texas.

Record Office Rental Rates: Once again, office market rates in DFW hit an all-time high, reaching an average of $25.67 per square foot. This represents a 6.3 percent increase over 2015.

New Construction: Office buildings under construction increased by 12.6 percent, with 7 million square feet under construction. Look for development activity to remain strong in 2017.

 

2017 Outlook

Flight to Value: With ever-increasing office lease rates, we anticipate many local companies will leave high-rent areas and move to submarkets that offer a better bang for the buck, such as the LBJ and North Central Expressway corridors.

Construction Completions: Many of the buildings currently under construction will be delivered this year. This will increase the amount of available Class A space and enable tenants to find good values in some of the older buildings that lose tenants to the new buildings.

Increase in Rental Rates: Rental rates will continue to increase in 2017, but we predict they will begin to level off later in the year.

Densification of Offices: Tenants that move to new buildings are continuing to increase the density of their office space. Reduced-size individual offices, increases in low-walled workstations (the fancy new word for cubicles), and smaller reception areas are all trends we are seeing today.

Championship Season: Last year, I struck out when I predicted the Rangers would win the World Series in 2016. It turns out nobody is perfect. … This year, I will increase my odds of winning with a safer bet by predicting that Dallas’ own Jordan Spieth will return to peak form and claim another major championship!

 

Robbie Baty Robbie Baty is a senior director in the office tenant advisory group of Cushman & Wakefield in Dallas.

 

 

 

 

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