Grant Pruitt, SIOR August 29, 2019
The Dallas-Fort Worth Metroplex real estate market continues to tighten, and July marked the 111th month of positive employment growth with over 260 jobs added per day, for a total of 96,212 since July 2018. Unemployment in Texas is the lowest it has been since 1976, and DFW has held flat for the last year near the current 3.4% unemployment. Like many other major metropolitan areas, the labor shortage continues to put a strain on the economy.
Low vacancy and high rental rates are the name of the game in office and industrial. At 14.9%, office vacancy is down slightly from the prior year and approaching a ten-year low, a trend that we have observed for the last six quarters. Office rents are at an all-time high averaging $25.89/RSF, with Class A rates in Uptown commanding north of $60/RSF gross. Absorption is down 33.5% from the prior year, but construction deliveries are down 53.2%, and new development starts are down over 75% from its peak in Q4 2015. DFW has kept office development in check and has not overbuilt as they have done in the past. Over the next 18 months, we expect decreased vacancy, and rental appreciation, albeit at a slower pace than we have seen. This is the healthiest the DFW office market has looked this late in an economic expansion.
Warehouse vacancy increased 0.3% from the previous quarter, averaging 6.2%, and approaching the all-time low of 5.09% in 2000. Average warehouse rental rates are near all-time highs at $5.42/RSF. Rent appreciation has outpaced Chicago and Atlanta at 35% above pre-recession highs. Year-to-date warehouse absorption totaled 5.5 million versus 7 million for the same period one year prior. New warehouse deliveries are down by 400,000 SF totaling 6.5 million SF, and construction is up at 31.5 million SF with 30% pre-leased. Aside from South Dallas which is 20% vacant, the rest of the metropolitan area is extremely tight. From a tenant negotiations standpoint, any sort of slowdown would be welcomed as there is a lack of inventory in many markets. The industrial market is more robust than it has ever been and boasts a more robust future, especially in an Amazon model and 3D printing world.
From a macro standpoint, there is enormous interest from coastal markets for relocation and investment, and the fundamentals for DFW continue to be encouraging with a positive 2019 outlook. In migration to the DFW and population growth will be critical to continue the growth trends DFW has experienced, but given the low taxes and exceptional standard of living, this should continue.