Dallas Keeps Building Offices Amid High Vacancy, Slow Leasing

In most major metros, construction of new office buildings has withered as office vacancy rates reach record-high levels and construction loans are scarce.

Dallas appears to be an anomaly: its office construction pipeline is really robust despite red warning lights that are flashing on the metro’s vacancy rate and the overall availability of direct office space.

More than 5.2M SF of office space is under construction in Big D, making Dallas the national leader in building offices. Only four major markets are exceeding more than 4M SF in office construction, with Austin a close second at 5.1M SF, followed by Manhattan (4.9M) and Seattle (4M SF), according to CBRE.

Meanwhile, nearly 26% of office space in the Dallas-Fort Worth market is vacant, with total availability at close to 30%, topping 71M SF. Most of the availability is direct space, with sublease availability totaling close to 10M SF, according to Avison Young’s Q4 2023 market report.

Availability, which has increased by 4M SF since the end of 2022, is nearly 50% higher than the DFW market’s long-term average. Leasing activity in 2023 totaled 11.9M SF in DFW, which is about 5.1% of the office inventory, lower than the percentage recorded during the Great Recession.

Between 2005 and 2019, overall office space availability in DFW averaged about 48M SF.

Avison Young said year-end office leasing in DFW is not sufficient to keep up with increasing availability, which it termed an “historic supply-demand disconnect.”

“Unless leasing activity picks up meaningfully, it will be difficult to bring down the current high vacancy and availability rates to more normal levels,” Avison Young’s report said.

Despite the creation of 51K in new office jobs in DFW last year, net absorption was negative 1.3M SF in 2023, a downward swing of more than 2M SF from the positive absorption of close to 900K SF in 2022.

According to Placer.ai data, foot traffic to DFW office buildings remains substantially lower than pre-pandemic levels, with visits down more than 34% in January compared to four years ago.

Nationally, the new office construction pipeline continued to shrink in Q4 2023, dropping 5.3% from the previous quarter and totaling less than half of its 2020 peak, according to Cushman & Wakefield.

While the national office construction pipeline total of about 52M SF in the fourth quarter represents a 46% drop compared to the 2018 total, office space under construction in Dallas has surged by 34% during the same period, according to CBRE’s tally. The level of office construction activity in Dallas is at its highest since a peak in 2016.

Mega-projects continue to break ground in Dallas, including some that are fully pre-leased or represent continuations of multi-phased developments in prime submarkets in the metro.

Major projects getting underway in Dallas include a $500M Goldman Sachs campus, an 800K SF building that will be anchored by Wells Fargo and 23Springs, an 800K tower in Uptown Dallas that will be anchored by a professional services company.