Forecast: D-FW Office Leasing to Start Rebound Soon, But Take Years to Reach Pre-COVID Levels
After suffering setbacks during the pandemic, North Texas’ office market should begin to make up lost ground later this year as business workers return to the office. That’s what analysts at the commercial property firm Transwestern see as the Dallas-Fort Worth real estate market recovers from COVID-19.
“Transwestern expects office demand to rebound in the second half of 2021 as vaccines become available to everyone and business revenues continue improving as the economy reopens,” Transwestern research manager Andrew Matheny said. “Touring activity has dramatically increased in recent weeks, but most businesses are understandably hesitant to sign leases until they are confident that the economy is moving in the right direction. Pent-up demand and corporate relocations will likely create several years of robust absorption in Dallas, returning market-level vacancy to pre-pandemic levels by 2025,” he said. “Well-positioned properties will likely recover much sooner.”
In 2020, the D-FW area saw one of the sharpest declines in office leasing in decades as the pandemic shut down businesses. Net office leasing in the area fell by more than 4 million square feet. Now Transwestern estimates that 12 million to 15 million square feet of pent-up office leasing will start to hit the market later this year. As much as half of that could come from companies relocating from out of the area.
“Dallas will likely see above-average job growth as it did after the Great Recession,” Transwestern analysts said in a new study. “If corporate relocations accelerate, Dallas real estate could experience similar growth dynamics as the energy boom of the ’70s and ’80s. The region’s exceptional industry diversity and modest levels of office construction will make growth more sustainable, decreasing the probability of experiencing another bust as Dallas did in the late 1980s.”
D-FW office vacancies, which have risen since the start of the pandemic, are expected to peak this year. But don’t expect building vacancies or rents to rebound to pre-COVID levels for several years, Transwestern’s report says.
“Pent-up demand will likely return market vacancy to pre-recession levels in a shorter time than the past two recoveries,” according to the forecast. “Sublease space could be absorbed sooner as floor plans did not densify as much in Dallas, increasing the probability that available stock can fit tenants’ needs.”
More than 9 million square feet of office sublease space is currently on the market in the D-FW area — surplus offices that corporations are paying for but hope to rent out to other firms...
