DFW Office Projects in 2021
The number of DFW office projects will look different in 2021 than it did in the time before COVID-19. Pre-COVID, downtown Dallas was a forest of construction cranes. In 2020, the North Texas office saw a 4 million square foot reduction in occupancy. The biggest decline in decades.
Steve Brown of The Dallas Morning News recently spoke with Billy Gannon, a senior vice president with Transwestern. Gannon told him that office owners are hopeful that relocations to the DFW area from other regions in the country will help fill vacancies.
Cushman & Wakefield’s US National Office report for Q4 2020 shows net absorption falling even further than previous quarters. And vacancy rates rising.
Downtown Dallas may see fewer new office building starts, but the suburbs are continuing to see new developments in the office sector.
Developer’s are holding off on speculative office projects for a couple of reasons: difficulty in finding funding and uncertainty about office space needs.
Big players in the office sector are still trying to decide what their future space needs look like. Lenders are hesitant to make capital commitments when there remains this level of uncertainty.
Less than 40% of Dallas-area office workers have returned to their desks. Many companies may find that their workforce has been more productive at home and will consider allowing employees to continue with this model.
Looking Ahead to Q3-Q4 2021
Current predictions state that employers will want 80-85% of their previous space.
McKinney and Frisco in particular are seeing the most activity. According to Biz Journals, Frisco is among the hottest office markets in the Metroplex. Keurig Dr. Pepper will be completing their 17 story, 350,000 sf headquarters at The Star.
Kaizen Development Partners plans to complete a 200,000 square foot office building on State Highway 121 in 2022.
A 10-story, 300,000 square foot office tower in the Cypress Waters development will also open in 2022.
On a national level, just as the demand for space is falling, the amount of new supply continued to grow. This was the result of projects already underway before the pandemic were completed. This increase, combined with the decline in absorption led to a surge in vacancy across the country. The national vacancy rate grew from 14.4% in Q3 to 15.5% in Q4. This is the largest increase in a single quarter since Q1 2002.
The vacancy rate is expected to rise further as the impact of job losses and the remote working dynamic plays out in the office sector. However, as the economy grows, office leasing will pick up.
Asking rents will likely decline in the next few quarters. A result of pressure on owners from a rising volume of sublease space. According to Cushman & Wakefield, it will be a couple of years before national rental rates begin to rise again.
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