Monday, August 24, 2015

Dallas-area office rents are hitting record highs

Dallas business execs who made their last local office leases coming out of the recession had better be prepared for sticker shock when they get ready to rent again.
Office rents in some North Texas business districts are at record high levels.
And prime office digs in new buildings in Uptown and top suburban locations could cost as much as twice what the citywide average rent was back during the economic downturn.
“We are seeing rent escalations that we have never seen in our history; it’s unprecedented,” said Phil Puckett, executive vice president with commercial real estate firm CBRE. “We may actually wind up with a shortage of first-class office space in some areas — something we haven’t seen since the early 1980s.”
Dallas-Fort Worth office rents are up by between 4 percent and 5 percent this year across the board.
But some hot business districts are seeing much larger rent gains.
Office rents are more than 9 percent higher in downtown Dallas, Uptown and along Turtle Creek from a year ago, according to a new study from Cushman & Wakefield Inc.
And rents have increased 7.5 percent on North Central Expressway and about 6 percent in Preston Center, Cushman & Wakefield found when looking at the cost of an average 20,000-square-foot office deal.
The highest office rents in town are in Uptown, where new buildings are quoting annual rental rates of between $45 and $52 per square foot, according to commercial real estate firm JLL.
That’s almost twice the citywide average rent at midyear.
JLL estimates that overall office rents for first-class building space has jumped by about 17 percent in the last two years.
“The newest product going up is very high-priced because it’s brand new and very high quality,” said JLL market research director Walter Bialas. “When you look at U.S. markets overall, North Texas is still very affordable.
“And it’s still affordable compared to the places companies are relocating from,” like California and the East Coast, he said.
The last time Dallas area office rents rose so quickly was in the early 1980s building boom.
Back then, most of the new buildings being constructed around town were almost totally empty without significant upfront leasing.
Today, more than half of the office space under construction in North Texas is already leased to tenants, according to CBRE.
The commercial real estate firm estimates that 7.3 million square feet of offices are being built in the D-FW area.
The office leasing in these new buildings is dominated by companies in the life sciences industry, manufacturing, financial services and legal business, CBRE found.
To offset big rent increases in new offices, businesses are often taking less square footage, CBRE’s Puckett said.
“The firms that have been paying lower rents, most of them are very inefficient in their space,” he said. “Yes, there is sticker shock with the new buildings, but they are efficient.
“When you go from 200,000 square feet in an older building to 110,000 in a new home, you are going to pay more for rent, but you are cutting your square footage to offset that.”
Steve Brown/Dallas Morning News