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Distress Continues to Impede Office Market

Commercial real estate investors continue to be drawn to the D/FW Metroplex because it has one of the strongest job markets in the nation. As a result,…

By Alan L. Pontius - Managing Director of the Special Assets Services Division of Marcus & Millichap Real Estate Investment Services. | Updated on December 09, 2011

Commercial real estate investors continue to be drawn to the D/FW Metroplex because it has one of the strongest job markets in the nation. As a result, the region’s multifamily and retail investment sectors have reaped the benefits with improving fundamentals. In spite of these gains, the recession has taken its toll on the CRE market, as each product type works through various stages of delinquency, particularly the highly exposed office sector. The outlook for the multifamily and retail segments is more promising because employment gains have sparked increased demand for both types of assets. Meanwhile, industrial assets in D/FW have experienced a limited amount of loan defaults, following a similar pattern nationwide, and the sector should stabilize relatively soon due to very little new construction.

The Dallas office sector remains nearly 22% vacant, one of the highest rates in the country, and distress continues to impact the marketplace. By year’s end, vacancy is expected to increase 50 basis points to 22.5%, and rent gains will be nominal. Asking rents will rise 1.1% to $19.42 per square foot, while effective rates will pick up 1.3% to $15.14 per square foot by year end. Office performance will vary dramatically by quality and location, with class A assets in Preston Center, Las Colinas, East Dallas/Near North Central Expressway and the Fort Worth CBD expected to outperform this year.

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