MARKET REPORT

OFFICE
Dallas/Fort Worth Metro Area Q2/19
Developers Remain Active as Corporations
Continue to Capitalize on North Texas Office 2019 Outlook

Newfound interest in Fort Worth headlines rising demand for urban CONSTRUCTION:
offices. An infusion of white-collar jobs and a business-friendly envi-
Development climbs more than 25 per-
ronment will support strong leasing activity this year despite more than
cent relative to a year ago as 8.1 million
8 million square feet of new space coming to fruition. The metro’s urban
cores will drive the continued improvement of the Dallas/Fort Worth 8.1 MILLION SQ. FT.
will be completed
square feet is completed. This total still
sits more than 2.3 million square feet
office market as availability in these areas is squeezed tighter. Downtown
below the cyclical high posted in 2017.
Fort Worth is attracting an increasing number of businesses as this area
and its amenities become more compatible with young professionals,
boosting the talent pool. In addition, Dallas’ core remains a primary ben-
VACANCY:
eficiary of booming economic growth witnessed across North Texas over
the past several years. Strong net absorption will keep vacancy
harnessed at 18.9 percent this year.
Corporate interest in the Metroplex continues to grow. The new cor- 0 BASIS POINT
change in vacancy
During the previous two years, the rating
porate campuses of American Airlines and Pioneer Natural Resources inched up 20 and 70 basis points.
make up more than a third of this year’s deliveries. AmerisourceBergen
and Charles Schwab will also establish new offices in the Metroplex,
adding to the list of high-profile companies building a broad footprint in
the Dallas/Fort Worth area. Quickly growing northern suburbs comprise
RENTS:
much of the new square footage in 2019, with cities like Coppell, Plano The average asking rent remains relative-
ly affordable compared with the nation’s
and Westlake leading the way. Here, numerous office buildings in the
150,000- to 250,000-square-foot range will be completed this year, hous- 2.2% INCREASE other major metros as the figure rises to
ing corporations as well as younger companies seeking an upgrade from in asking rents $25.89 per square foot this year.
their current locations.

Investment Trends
• Northern parts of the Metroplex remained highly targeted by private
Local Office Yield Trends
and institutional investors. Addison and Plano had no shortage of
h buyers for their diverse pool of listings, mostly ranging from 50,000 to
12.0% 200,000 square feet. The majority of these properties were stabilized,
netting initial yields in the upper-6 to lower-7 percent band, in line with
10.5% the market average.
Average Rate

9.0%
• Investors focused heavily on Las Colinas as the area’s proximity to DFW
International Airport and central location between the metro’s primary
7.5% cities make it a desired neighborhood for corporations and other
high-profile businesses. Cap rates in the mid-7 percent band attracted
6.0% a mixed bag of investors; however, institutional capital consumed a
* 01 03 05 07 09 11 13 15 17 19* sizable portion of transaction velocity.

• Class C space in and around Downtown Fort Worth garnered interest

from a variety of private buyers. Sales prices for a number of the trades
Sales Trends
in this area sat under $1 million as assets were generally in the 15,000-
Sales Price Growth
to 20,000-square-foot realm .
* Cap rates trailing 12 months through 1Q19
er Square Feet

Sources: CoStar$400
Group, Inc.; Real Capital Analytics 30%
Year-over-Y

$300 15%
 Employment Trends
1Q19 – 12-Month Trend
Local Office Yield Trends
Employment Growth Office-Using Emp. Growth EMPLOYMENT
6% 12.0% 2.9% increase in total employment Y-O-Y
Year-over-Year Change

3% 10.5% • Roughly 106,000 workers were staffed over the past year, a third
of which consisted of office-using professions. An influx of tech

Average Rate
0% 9.0% and management-related positions supported a gain of 25,900
employees to professional and business services — the most of
-3% 7.5% any sector.

• Strong hiring activity pushed the market’s unemployment rate

-6% 6.0%
09 10 11 12 13 14 15 16 17 18 19* down
01 nearly
03 0520 basis
07 points
09 11 to 13
3.4 percent.
15 17 19*

Office Supply and Demand Sales Trends

Completions Absorption Sales CONSTRUCTION
Price Growth
12
Average Price per Square Feet 4.9 million
$400 30%
square feet completed Y-O-Y

Year-over-Year Growth
Square Feet (millions)

6
$300 • Development significantly slowed down15%from the previous year
when 10.6 million square feet was completed. Highly amenitized
0
$200 luxury space continues to drive construction.
0%

-6
• Inner-ring neighborhoods registered the most new construction
$100 -15%
since last March as the Far North Dallas and Uptown/Turtle
-12 $0
Creek submarkets each added over 1.0 million
-30%
square feet.
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19**

Vacancy Rate Trends

Metro United States VACANCY
24%
20 basis point decrease in vacancy Y-O-Y
18% • Market vacancy drifted down to 18.6 percent as nearly 5 million
Vacancy Rate

square feet of space was absorbed. One year earlier, the measure
12%
rose 20 basis points.

6% • The submarkets comprising the city of Fort Worth boast some of

the lowest vacancy measures in the entire Metroplex, highlighted
0% by North Fort Worth, which sits at 9.2 percent following a
09 10 11 12 13 14 15 16 17 18 19* 530-basis-point decrease.

Asking Rent Trends

Metro United States RENTS:
14%
2.2% increase in the average asking rent Y-O-Y
Year-over-Year Change

7% • Rent growth in the Metroplex maintained its steady downward trend,

rising 2.2 percent to an average of $25.43 per square foot.
0%
• Class B/C space continues to outpace Class A properties in rent
-7%
growth. The two tiers witnessed the average asking rent rise by 2.9
and 1.2 percent, respectively, over the past 12 months.
-14%
09 10 11 12 13 14 15 16 17 18 19*

* Forecast
Source: CoStar Group, Inc.
 Demographic Highlights

2019 Forecast Job growth Population Age 20-34* Sq. Ft. Per Office Worker*

Metro 2.8% Metro 21.2% Metro 299

U.S. Average 1.3% U.S. Average 20.6% U.S. Average 215

Office Square footage*

12.0% Urban

2019 Office-Using Job growth Population of Age 25+ U.S. Average 32.0%

Percent with Bachelor Degree+**

Metro 3.6% 88.0% Suburban
U.S. Average 1.7% Metro 32.7% U.S. Average 68.0%

U.S. Average 29.9% *1Q19

**2018

SUBMARKET TRENDS SALES TRENDS

Deal Flow, Asset Appreciation Edge Higher;
Lowest Vacancy Rates 1Q19*
Employment Trends Value-Add Properties in Limited
Local Office Supply
Yield Trends
Employment Growth Office-Using Emp. Growth • With an abundance of stabilized properties on the market, transaction
Y-O-Y Average
6% Vacancy Y-O-Y % volume increased
12.0% 22 percent year over year as investors were eager to
Submarket Basis Point Asking
Rate Change
Change Rent establish themselves in the Metroplex. Strong buyer demand support-
Year-over-Year Change

3% ed a 20-basis-point
10.5% drop the average cap rate to 6.8 percent.
Southwest Dallas 7.0% -60 $20.86 -1.9%
Average Rate

• Asset appreciation was strong since last March, posting a 10 percent

0% 9.0%
North Fort Worth 9.2% -530 $23.44 4.3% gain and putting the average price per square foot at $219.

-3% Outlook: While7.5% value-add properties will remain sparse, adequate levels
South Fort Worth 10.2% 40 $24.44 1.4%
of fully leased stabilized assets will keep Dallas/Fort Worth an active
-6% investment market.
6.0%
Preston Center 09 1012.5%
11 12 -140
13 14 $37.70
15 16 17 -0.6%
18 19* 01 03 05 07 09 11 13 15 17 19*

Fort Worth CBD 12.9% -30 $25.80 3.9%

Office Supply and Demand Sales Trends

East Dallas 13.6% 310 $22.76 18.1%
Completions Absorption Sales Price Growth
12
Grand Prairie-South Irving 14.4% -80 $18.63 6.0%
Average Price per Square Feet

$400 30%
Year-over-Year Growth
Square Feet (millions)

Lewisville-Denton 6 14.4% 260 $21.97 3.2% $300 15%

Mid-Cities 0 15.3% -30 $21.79 2.7% $200 0%

Central Expressway -6 15.8% 0 $29.17 4.7% $100 -15%

Overall Metro -12 18.6% -20 $25.43 2.2% $0 -30%

09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19**

* Includes submarkets with more than 100,000 square feet of ** Trailing 12 months through 1Q19 over previous time period
inventory Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States

24%
 1Q19* Office Acquisitions CAPITAL MARKETS
By Buyer Type
Cross-Border, By DAVID G. SHILLINGTON, President,
11.6%
Marcus & Millichap Capital Corporation
Other, 6.0%
Equity Fund • Ongoing trade concerns weigh on growth outlook; Fed plots next
& Institutions, 32.9% steps. Amid rising trade tensions between the U.S. and China and
slowing global growth, the outlook has turned more cautious. Mar-
ket volatility, along with a flight to safety trade, has flattened the
yield curve dramatically, with the 10-Year Treasury trading below
Private, 45.1%
Listed/REITs, 4.4% 2.2 percent. This has pushed the broader yield curve into inversion,
a closely watched precursor to a potential recession. Meanwhile,
many measures of the domestic economy remain buoyant, includ-
Office Mortgage Originations ing continued job and wage growth, historically low unemployment
By Lender and muted inflationary pressure. These conditions have prompted
a dichotomy, with Federal Reserve officials signaling more accom-
100%
modative policies. The impending end of quantitative tightening in
Percent of Dollar Volume

September, coupled with potential cuts to the Fed funds rate in the
75% Nat'l Bank/Int'l Bank
Reg'l/Local Bank second half of the year, highlight the shift in Fed policy. As a result,
50% CMBS long-term interest rates are likely to remain subdued, with Fed
Financial/Insurance policy leaning toward accommodation.
Pvt/Other
25%

• Conservative underwriting balances abundant marketplace

0% liquidity. While debt availability for office assets remains widely
14 15 16 17 18
available from a wide range of sources including local, regional and
Atlanta Office: Michael
national Glass
banksFirstandVice President/District Manager
insurance companies, sentiment surrounding
* Trailing 12 months through 1Q19 michael.glass@marcusmillichap.com
Michael Fasano First Vice President/Regional Manager
Include sales $2.5 million and greater the health of the economy has fallen somewhat in recent months.
1100 Abernathy Road N.E., Bldg. 500, Suite 600 Cleveland Office:
Sources: CoStar Group, Inc.; Real Capital Analytics
Atlanta, GA 30328 Lenders remain broadly cautious in underwriting, with loan-to-
5005 Rockside Road, Suite 800
(678) 808-2700 | michael.fasano@marcusmillichap.com value (LTV)
Independence, OHratios
44131 typically in the 55 to 70 percent range, depend-
(216) 264-2000
ing on the borrower, asset and location. The conservative approach
has filtered
Columbus Office: into a focus on proven property results, with much less
National Office and Industrial Group
230 West Street, Suite 100
willingness to lend against pro forma rents. This has prompted
Alan L. Pontius Columbus, OH 43215
investors
(614) to turn toward short-term mezzanine debt and bridge
360-9800
Austin| National
Senior Vice President, National Director Office: Office and Industrial Group
Tel: (415) 963-3000 | al.pontius@marcusmillichap.com loans to cover capital improvements, while seeking long-term
Craig Swanson Vice President/Regional Manager solutionsOffice:
once returns have been solidified. Construction origina-
9600 North Mopac Expressway, Suite 300 Cincinnati
Prepared and edited by Austin, TX 78759 tion remains muted, with lenders focusing on core locations with
Brandon Niesen (512) 338-7800 | craig.swanson@marcusmillichap.com Colby Haugness Regional Manager
proven
600 demand.
Vine Street, 10th Floor
Research Associate | Research Services
Cincinnati, OH 45202
(513) 878-7700 | colby.haugness@marcusmillichap.com
For information on national office trends, contact:
John Chang
Senior Vice President, National Director | Research Services
Baltimore Office:
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
Tim Speck First Vice President/District Manager
tim.speck@marcusmillichap.com
Matthew Drane Regional Manager
Price: $250 100 E. Pratt St., Suite 2114 Dallas Office:
Baltimore, MD 21202 5001 Spring Valley Road, Suite 100W
Tel: (202) 536-3700 | matthew.drane@marcusmillichap.com Dallas, TX 75244
© Marcus & Millichap 2019 | www.MarcusMillichap.com
(972) 755-5200

Fort Worth Office:

300 Throckmorton Street, Suite 1500
Fort Worth, TX 76102
(817) 932-6100
Boston Office:

John Horowitz First Vice President/Regional Manager

100 High Street, Suite 1025
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee,
Boston, MA 02110
express or implied, may be made as (617)
to the896-7200
accuracy |or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data
tim.thompson@marcusmillichap.com
includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of Denver Office:
future events and this is not a guaranty regarding a future event. This is not intended to provide
specific investment advice and should not be considered as investment advice.
Skyler Cooper Regional Manager
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics;
1225 17thReal Capital
Street, SuiteAnalytics;
1800 TWR/Dodge Pipeline; U.S. Census Bureau
Denver, CO 80202
Charleston Office: (303) 328-2000 | skyler.cooper@marcusmillichap.com

Benjamin Yelm Regional Manager