Costar, a commercial real estate research and listing service, reported that the Dallas Fort Worth office market closed out 2019 with 5.2 million square feet (SF) of net absorption which is the highest since 2014 which had 6.9 million SF of net absorption.
Net absorption is the best measure of the demand for office space. It is simply the net change in the amount of office space occupied. So if 200 million SF were occupied on January 1 and 205 million SF are occupied on December 31, there was 5 million SF of net absorption. In bad economies when businesses are laying people off instead of hiring them, net absorption could actually be negative because companies are leasing less space when their leases expire and they are also trying to sublease space they no longer need.
As is normal, the benefits of good absorption aren’t necessarily evenly distributed throughout the city. Of the 5.2 million SF of net absorption, 4.9 million SF was concentrated in just 5 submarkets. No surprise there – Las Colinas, Upper Tollway, Westlake, blah, blah. But one of those submarkets was the HEB-Mid Cities submarket which was a surprise, but it was all due to American Airlines moving into its new 1.7 million SF headquarters.
In spite of strong net absorption, however, the overall vacancy rate is still at 15%. That’s because new buildings are being constructed. If no new construction were to occur, the vacancy rate would certainly be going down, but the market always builds when demand increases. Therefore, the vacancy rate over the last decade has remained in the 14%-17% range. And that’s not likely to change.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate (also known as a tenant rep) with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas, and the surrounding areas and specializes in companies that lease or buy office and warehouse properties.