Patrick D. Murray is the manager of media partnerships at Reis Reports
The Dallas metro contains 18 submarkets as defined by Reis, including Plano/Allen, Irving, Richardson, Las Colinas, and Flower Mound/Lewisville/Denton. (Reis analyzes Fort Worth separately.) As the old saying goes, everything is bigger in Texas, and the Dallas commercial real estate market is no exception. One of the characteristics of the Dallas market is a traditionally high vacancy rate in the office sector, over 20.0% since 2001 and currently at 23.3% for Q1 2013.
Vacancy on the Gradual Decline
This vacancy rate reflects Dallas’s aggressive, optimistic development culture, albeit toned down in recent periods with a post-recession move towards build-to-suit projects instead of the classic speculative developments that had been its hallmark. The construction industry is re-gaining its momentum, but even with the expected slight increase in these types of speculative development projects, especially in the northern suburban submarkets, the vacancy rate for the entire Dallas metro is expected to drop somewhat, with year-end 2013 vacancy projected at 23.1% and a gradual, at best, long-term projected decline. It is not expected to fall below 20.0% for at least the next few years. But for now, the vacancy rate in Dallas ranks the highest among the nine Southwest metros and is the 76th highest out of the primary 82 nationwide metros covered by Reis. The Q1 2013 vacancy spread for all of the Dallas submarkets ranges from 7.4% for the Preston Center submarket, 13.0% for Flower Mound/Lewisville/Denton, and 14.6% for East Dallas to 29.0% for Richardson and 29.4% for Oaklawn up to a high of 31.7% for the Stemmons Fwy/Love Field submarket.
Asking Rents Slowed, But Still on the Rise
The metro’s asking rents increased 0.6% in Q1 2013, ending the quarter at $20.08 per square foot. This ranks Dallas fourth out of the nine Southwest metros and 10th out of the primary 82 metros covered by Reis. This is a significant drop from Q4 2012 when Dallas asking rents spiked 1.6%, ranking at number one and number four in the Southwest and nationwide, respectively. (The growth rate for the previous three quarters of 2012 was a more realistic 0.3% per quarter.) Mean asking rents among the Dallas submarkets runs from a low of $15.03 for Stemmons Fwy/Love Field, $15.97 for South Dallas, and $16.45 for Far East Dallas to $21.69 for Las Colinas and $29.16 for Preston Center up to a high of $30.41 in Uptown.
The Leader of the Pack
Dallas has been a leader in the economic recovery and is expected to maintain that role, making it an attractive market for expanding and relocating businesses. Despite the metro’s relatively bright economic outlook, rent growth for the Dallas market is expected to be 2.0% for full-year 2013, compared to 2.6% for the Southwest region and 2.5% nationwide. As mentioned above, the year-end 2013 vacancy rate is expected to be 23.1%; this compares to 17.9% for the Southwest region and 16.8% nationwide.