It was the best of times. It was the worst of times. Just ask office operators in North Texas.
Dickens’ “A Tale of Two Cities” opener may as well be about Dallas-Fort Worth’s office market heading into 2025: for Class A properties, business is booming, but times are apocalyptic for older vintage buildings.
CBRE started the year off strong and brokered three 100,000-square-foot leases to unidentified tenants in Uptown, Las Colinas and Far North Dallas. In those submarkets, high-quality office space is so in demand, that it’s hard to come by.
As the area’s largest employers bring their workforces back to the office, demand will be even higher.
Yet, the area’s occupancy remains stubbornly high at 27 percent, pointing to a different story playing out in Class B and C properties.
The demand problem likely won’t ease up until the capital markets normalize, said Robert Blount, a vice chairman on CBRE’s office team.
Ripple effect
Five years after the start of the pandemic, millions of workers are transitioning back to full-time, in-person work.
One of President Donald Trump’s less controversial first actions in office was a memo demanding all federal workers return to the office. (At the same time, he’s pledged to slash two-thirds of the federal government’s office stock).
Dallas-based AT&T ordered workers back to office this month. JP Morgan, which has almost 19,000 employees in Dallas-Fort Worth, is calling all workers back to the office in March.
Announcements from large companies and the federal government create “a ripple effect,” said Blount. As a result, smaller businesses are following suit.
Given DFW’s popularity for corporate relocations, “North Texas is going to continue to benefit from such mandates,” he said.
Still trending
Return to office mandates are amplifying the already popular office market trend of flight to quality. In order to get employees into the office, the office better be nice.
That’s putting even more pressure on the Class A office market.
“How do you compel your workforce to return to the office five days a week?” Blount posed. “So landlords are in a constant race to keep up with the evolving trends and deliver the desired service offerings to stand out from the competition.”
That competition is a win for tenants, who are being lured into office property with more tenant improvement funds than ever before.
Of course, more product could ease the squeeze. But, after rising interest rates tapered the development pipeline, it’s unlikely developers will start building again until it’s cheaper to do so.
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