D-FWs office market has hit the brakes – The Dallas Morning News

Dallas-Fort Worths booming office market is being derailed by COVID-19.

Net leasing in the area was down more than 150,000 square feet in the first quarter before the worst of the pandemic hit, according to commercial property firm CBRE. It was the first such quarterly decline in years.

Overall office vacancy in the area rose to almost 21%.

Many office lease deals have been delayed or put on hold because of the coronavirus and shelter-in-place orders in North Texas.

The first-quarter office leasing decline follows a strong year of more than 3.5 million square feet of net leasing in the D-FW area.

But the pandemic and economic slowdown are quashing the office market here and nationwide.

Office leasing has slowed, vacancy is rising and sublease space is expected to come back to the market quickly, CBREs analysts said in a statement. But office properties and office-using employment remain relatively insulated compared to other property types.

More severe impacts will come in markets with a high concentration of oil and gas and travel and leisure jobs, they said.

During the last decade, North Texas has been one of the countrys fastest-growing office building markets, with net leasing totaling more than 30 million square feet.

About 5.4 million square feet of additional office space was under construction in the D-FW area at the end of March in 30 projects. About 30% of the space in the new buildings is already leased, and 80% of the projects underway are speculative developments.

Unlike in other recent quarters, CBRE did not detail any large local office leases in the first three months of 2020. But CBRE senior managing director Blair Oden said some deals are still getting done.

Anything that was on the tracks working toward conclusion for the most part is continuing down that path, Oden said. "Those were deals that were at the goal line, and they didnt have the luxury of waiting.

Anything that was still on the launching pad has probably been put on hold.

Some office tenants with existing leases that are expiring soon may be seeking short-term extensions rather than hunting new office space.

Building owners are more receptive to these deals, Oden said.

Everybodys tone has changed in the last 30 days, he said. If you had gone to the landlord 30 days ago and said youd wanted a one-year extension, you likely would have gotten a no.

Landlords and tenants, everybody, are all in this together.

D-FW areas with the most net leasing in the first quarter included Far North Dallas (326,505 square feet) and LBJ Freeway (94,659 square feet).

But big declines in office absorption in downtown Dallas, Uptown-Turtle Creek and Las Colinas more than offset those first-quarter gains.

Commercial real estate analysts are forecasting net negative office demand in many major U.S. markets this year.

"We are just beginning to see the full extent of disruption from this pandemic, and the second quarter will be very tough for commercial real estate and nearly all other industries, CBREs global chief economist and head of Americas Research Richard Barkham said in a statement. U.S. commercial real estate will need more than a year to get back to full strength.

The real estate recovery will be gradual and will lag the economy.

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D-FWs office market has hit the brakes - The Dallas Morning News