2012 Outlook

by admin

The Dallas-Fort Worth office market is currently in a recovery phase helped along by the limited supply of new speculative construction projects and an increasing demand for space. The region has experienced slow, steady employment growth across diverse industry segments, which translated to positive net absorption for 2011. Asking rental rates are beginning to bottom out and concessions have reached their peak. Regardless of the sense of uncertainty for businesses on a national level, local tenants are making longer term decisions to take advantage of the current leasing environment.

From the tenant’s perspective, two recurring trends are to optimize space efficiency and to create a positive environment aimed at recruiting and retaining employees. The need to meet these goals has prompted a number of relocations within the market. Office spaces that provide a multitude of area amenities within walking distance are likely to be in higher demand in 2012. Other tenants are looking for more efficient office space configurations and consequently properties with higher parking ratios will be increasingly important as tenants occupy denser, more efficient spaces. Access to public transportation also continues to become more important for corporations making long-term decisions.

In 2011, the market saw the return of speculative office construction with Sterling One Construction and the City of Rockwall breaking ground on Trend Tower, a seven-story, 110,000-square-foot multi-tenant office building in Rockwall. A five-story, 60,000-square-foot speculative multi-tenant office building is under construction at The Plaza at Preston Center. Both buildings are expected to be completed by year-end 2012. Additionally, in November, Heady Investments broke ground on a six-story, 164,000-square-foot office building in Plano, the third speculative project in the region since late 2008.

In terms of build-to-suit construction, KDC Real Estate Development & Investments is building a 281,600-square-foot office project in Legacy Town Center for EnCana Oil & Gas Inc., slated for completion in May 2012. When the company relocates to the new structure, it will create another big block vacancy in the lower Platinum Corridor.

The West Plano/Frisco and Uptown submarkets are the hot spots for leasing activity and development, given their supply of quality office space with desirable amenities. These markets are a safe bet to attract both the young employment talent and appeal to top executives. This positive trend will continue in these submarkets as well as Las Colinas with their improving surrounding amenities and the completion of their link to the DART light rail. Although the Plano submarket has been one of the most positive leasing markets in Dallas-Fort Worth, several large blocks of space are anticipated to hit the market soon due to corporate consolidations and build-to-suit activity.

The Dallas-Fort Worth metropolitan area has been one of the nation’s largest job creators during the past year, but job growth will need to accelerate to fuel activity in the office market through 2012. In 2012, expect more office buildings to change hands as investors find opportunistic acquisitions and lenders step up the amount of foreclosures. REITs will also likely be more active in North Texas over the course of the next year. An increasing number of tenants requiring larger blocks of space are projected to relocate to the Dallas-Fort Worth area in 2012.

— Kathy Permenter, managing director of agency leasing for Grubb & Ellis' Dallas office.

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