Overall Dallas Fort Worth Office & Warehouse Market Situation Report
These key issues will impact your decision to lease or buy office space and lease or buy warehouse and industrial space in the Dallas Fort Worth area.

Current lease rates for office and warehouse lease space remain quite high in many Dallas Fort Worth sub-markets despite reduced demand and negative absorption. In addition occupancy rates are also high as well, for the time being, reinforcing the record lease rates even after the presidential election. Economic concerns have stalled many local firms from planned expansions resulting in further reduced demand for office and warehouse space in all but a few sub-markets. New business starts are also way down which further sets the stage for reduced demand going forward and the possibility of lower lease rates as well. Dallas Office and Industrial lease rates will also likely decline further as many of the record subleases that are available default and become direct building vacancy.

While the record high gasoline prices have abated to some degree, energy costs are still much higher than ever before. In the past, market experts usually allowed $1.50 per square foot per year of leased area for electrical cost allocation in multi-tenant office buildings and for the office space portion of warehouse property. Today it is not uncommon to see this number at $2.50 per square foot per year or higher - especially for older properties that have out-dated HVAC systems!

In years past most Dallas Fort Worth area landlords offered " full service" office leases with electricity included in the base rent. Now virtually all landlords have switched to "plus electric" leases. The reason for this is that it allows the landlord to recover its increased energy costs much faster than those recovering the increased costs via the base year expense stops in full service leases. Electrical costs are now a very serious consideration when evaluating a lease.

Special care must be taken to find out what each building’s contracted electrical rate is and when that contract expires as it relates to your lease. It is also important to fully evaluate the HVAC system serving the A/C portion of warehouse space because those with older systems will pay more money in utility cost and upkeep of the aged systems.

In years past most significant sized office and warehouse property owners in Dallas Fort Worth had little trouble funding finish out for leases, paying for the proper upkeep of their buildings, paying their real estate property taxes and paying commissions. It was rare indeed to hear of an owner that any troubles along these lines and no one worried much about a landlord default. Sadly, that is simply not the case today and tenants must be mindful and well advised as to the true situation with many Dallas Fort Worth area office and warehouse landlords.

A tenant can no longer assume that all property owners can actually fulfill their obligations under the lease. Imagine that you sign a lease expecting your new lease space to be built out or refurbished per the lease you signed and prior to your move in date you find that the work has not been done - nor will it be done. This has actually happened in the Dallas Fort Worth office market and will likely continue to happen until we see a significant improvement in the overall Dallas Fort Worth and Texas economy. On a less gloomy note, the Dallas Fort Worth and Texas markets in general have suffered less than the nation as a whole during the economic downturn .There are office and warehouse property owners out there that either have little or no debt to worry about on their properties or they have proper financing in place that will allow them to perform when others simply cannot. The trick of course is knowing which owners to deal with now and which to avoid until the economy changes for the better and they can get back in the game.

Given the trend of flat to falling rates in many of the sub-markets, now is a great time for tenants to consider early lease renewals. Many landlords would rather reduce your rent now under the terms of a lease renewal than risk losing you as a tenant later should the economy worsen. If your lease is expiring in the next eighteen months, or less, contact us today for a free survey of the options. You may be surprised to see what kind of early renewal terms we can negotiate for you.

DALLAS / FORT WORTH OFFICE MARKET OUTLOOK

Construction activity of new multi-tenant projects remained practically flat. The surplus of existing available space far outweighed the appetite of tenants in the market for new space. Many well-occupied sub-markets, such as Preston Center and Plano Legacy are enjoying high but flat rates that may tend to decline in the coming months. Tenants should be mindful of their lease expiration date and act early to insure they are able to renew their lease at a favorable rate or make a move without panic caused by procrastination.

Small boutique buildings serving the needs of specialized users have grown in popularity in many of the well-occupied sub-markets in DFW. In addition, office condominium construction has clearly stopped due to the lack of financing for purchase and finish out of spaces and the lack of demand as well.

Resumption of significant new multi-tenant construction is unlikely for many months to come given current demand numbers versus the existing available space inventory and the lack of financing for construction. Sublease inventory is expected to grow and eventually cause a decline in market rates as defaults occur and net vacancy grows.

DALLAS / FORT WORTH INDUSTRIAL MARKET OUTLOOK

New construction and delivery of bulk warehouse facilities continued this year but at a much slower rate due to lack of easy credit for construction of new property. Higher clear heights, expanded truck courts, better parking, and state-of-the-art fire suppression systems found in new buildings lead to the decline in occupancy of older structures in favor of newer ones. New building delivery will decline in the months ahead to zero as projects under construction now deliver.

Vacancy overall has increased compared to the last period. DFW has clearly established itself as a significant player in the national bulk warehouse & distribution game. Development and completion of the many highway projects in the area have also contributed to the success of this market. Growth and development is flat. Sublease inventory will continue to grow in the coming months and will contribute to further declines in the market rate.

DALLAS / FORT WORTH COMMERCIAL FORECLOSURE OUTLOOK

Sadly the commercial property foreclosure rates continue to rise with each monthly auction. We have yet to see the bottom with regard to commercial foreclosures. Currently the majority of foreclosures are taken back by the lender at the courthouse steps. This trend may change as banks exceed federal asset ratio limits and are forced to sell the foreclosed property to the highest bidder, even at a terrific discount. Our research shows that gross loan value amounts foreclosed to date were as follows: August $117Million, September $46 Million and October $74 Million.

We will continue to provide more foreclosure data in this blog.