The first major lull in office construction in over a decade hit Dallas-Fort Worth.
No major office construction projects broke ground in the third quarter, marking a significant shift for a region that has seen years of continuous growth and development, the Dallas Business Journal reported, citing a recent report from JLL.
The last time DFW experienced a quarter-long pause in office construction starts was following the aftermath of the Great Recession, in 2010, JLL research manager Micah Rabalais said.
Several large projects are still underway, such as the Goldman Sachs campus in Uptown Dallas and the Wells Fargo campus in Irving. Those developments have contributed to DFW’s standing as the second-largest office construction market in the United States, trailing only New York City.
The construction stall has raised concerns about the future of office development. The office vacancy rate in DFW rose to 26.7 percent, pushing developers to reevaluate their strategies and consider the implications of a potentially overbuilt market.
Leasing activity remained robust, however, with about 3.7 million square feet of deals signed in the fourth quarter, a slight increase of 0.4 percent from the previous quarter.
The majority of those leases were renewals, highlighting a trend where companies are favoring short-term extensions over long-term commitments. The largest leases included Bank of America’s renewal of 553,800 square feet in Addison and Aimbridge Hospitality’s 248,660-square-foot extension in Plano.
Remote work and a tumultuous political climate are affecting the leasing environment, said T.D. Briggs of JLL.
“I think a lot of the bigger public companies still aren’t sure what they’re supposed to be when they come out of this on the other side,” he said.
Some companies are opting to buy office buildings instead of leasing. Raising Cane’s, for instance, acquired a 400,000-square-foot office building in Plano to bolster its North Texas operations.
The construction slowdown may help the market absorb some of the vacancy and prevent overbuilding, Rablais said.
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“I think that’s going to continue to drive the flight-to-quality trend, and if there’s less new product underway, it’s going to put more competition on the existing, well-built, well amenitized/located stuff.”
Looking ahead, Rabalais predicts DFW will experience positive momentum in the office market by 2025, especially as demand for quality office spaces continues to grow.
— Andrew Terrell
