Dallas Office Sales Pick Up the Pace

Despite some slowing metrics, the Dallas office sector holds steady. Sales in the metro in the past months increased, with the investment volume nearing $1.1 billion through the first three quarters of 2024, according to CommercialEdge data.

Additionally, 11 office developments came online in Dallas during the same time frame, totaling more than 1.6 million square feet of space. The market’s office vacancy rate, however, rose 390 basis points year-over-year, clocking in at 22.9 percent.

Office-to-residential conversions remain a focal point for investors and office owners, especially given the sector’s fluctuating metrics. According to CommercialEdge’s Conversion Feasibility Index, a tool designed to evaluate the practicality of repurposing buildings, Texas markets may not rank among leading U.S. metros, but there is significant potential for this transformation across the nation.

Dallas’ sales volume ranks high nationally

Dallas’ office investment volume year-to-date as of September reached roughly $1.1 billion. The metro ranked fourth nationally, following Manhattan ($2.7 billion), Washington, D.C. ($2 billion) and the Bay Area ($1.8 billion).

Assets in the Metroplex traded for $128 per square foot on average. Despite the figure being way below the $171 national average, sales metrics in the market remained consistent. Dallas’ average price per square foot in the first half of the year clocked in at $127 per square foot, according to prior data.

Peer markets such as Austin ($379 per square foot), San Diego ($196 per square foot) and Phoenix ($174 per square foot) fared better, while Houston ($104 per square foot) was at the opposite end.

In September, a joint venture between Enverra Real Estate Partners and Gulf Coast Western acquired the 230,000-square-foot Parkway Office Center North and South in Dallas. The two-building campus’ former lender, Principal Financial, sold its interest in the loan to the duo, foreclosing on the previous borrower.

Construction pipeline outpaces national trends

At the end of September, The Metroplex had about 4 million square feet of office space under construction, accounting for 1.4 percent of total stock, above the 1.0 percent national rate. When factoring in projects in the planning stages to that figure, the market’s share jumped to 6.2 percent.

The metro lagged behind peer markets San Diego (4.2 percent) and Austin (3.6 percent), while Atlanta (1.0 percent) and Houston (0.7 percent) were at the other end of the spectrum.

Earlier this year, the $4 billion life science Texas Research Quarter innovation district in Plano, Texas, received developmental approvals from the Plano City Council, as well as a financial plan for a tax increment financing reinvestment zone. NexPoint is the developer of the project, which will see the addition of more than 3 million square feet of space.

Completions in the Metroplex almost halve

A total of 11 office properties came online in Dallas year-to-date as of September, totaling more than 1.6 million square feet. This accounts for 0.5 percent of the market’s existing inventory, just under the 0.6 percent national figure. Year-over-year, office completions in the metro almost halved.

Among peer markets, Atlanta (1.2 million square feet) and Houston (1.4 million square feet) trailed Dallas, while Austin (2.0 million square feet) and San Diego (2.7 million square feet) outpaced the Metroplex.

In September, Fenway completed the renovation of The Gild, an office campus consisting of two 20-story towers and two two-story concourse buildings. The upgrades of the 900,000-square-foot property amounted to $50 million.

Vacancy rate well above the national average

Dallas’ vacancy rate in September clocked in at 22.9 percent, considerably above the 19.5 percent national average. This also marks a 390-basis-point rise year-over-year, with return-to-office policies failing so far.

Among peer markets, the Metroplex had one of the highest vacancy rates and was followed by San Diego (18.5 percent), and Atlanta (20.5 percent). Markets with significantly larger vacancy rates were Austin (27.8 percent) and the Bay Area (25.3 percent).

Earlier this year, Bank of America signed a 10-year lease renewal for its 553,799-square-foot space at Hallmark Center I in Addison, Texas. Office Properties Income Trust owns the two-building campus completed in 1977 and 1997, managed by The RMR Group

The Metroplex’s listing rate during the same month clocked in at $30.64, slightly below the $32.89 national average. Miami ($52.87) and Austin ($45.99) led the South region.

Dallas shared office space remains steady

Dallas-Fort Worth’s shared space inventory as of September totaled almost 5.3 million square feet across 279 locations. This accounted for 1.8 percent of the market’s total rentable office space, just below the 1.9 percent national rate.

The market was on par with Houston and Phoenix, but surpassed the Bay Area (1.3 percent). Among the largest U.S. markets, Miami took the lead with 3.8 percent of shared office space. Regus had the largest share of coworking space in the Metroplex, about 585,000 square feet, followed by Lucid Private Offices (442,627 square feet) and Cado (274,500 square feet).