#0059 - DFW Office Market on the Rebound - REALLY?

Confessions of a Recovering Landlord

Last week I saw a headline that said "The DFW Office Market Rebound is Underway". The article was a Cushman & Wakefield second quarter report and in it one of their tenant rep brokers was quoted as saying, "While absorption numbers were negative for the second quarter, the DFW office market rebound is underway, and activity has picked up significantly in the last 30 days". The article went on to say that according to the firm's data, net absorption was negative 895,503 SF with Class B space accounting for 762,004 of that negative absorption.

Sorry, but the above stats just don't ring true for me-how can you still have negative absorption and say the market is rebounding? Other stats quoted in the article were:

1. 1.2 million SF of new construction came online in the second quarter with 4.6 million SF of office space still under construction
2. The vacancy rate in the second quarter was 22.1%

They followed this info with a quote from one of their leasing agents: "We've seen a steady increase in activity since the first quarter, and we expect it to continue through the end of the year. Companies are coming back to the office in full, and those that did short-term deals are back out in the market ready for longer-term commitments. Dallas is in a very good spot right now".

Frankly, I'm not so optimistic. I often look to CoStar for market rates. How do their numbers compare to what C&W is saying?

1. 5.3 million SF negative absorption in the last 12 months - 5 quarters in a row
2. Total activity averaged 25.8 million SF 2017-2019
3. Sublease space is still at 9.3 million SF - stable
4. Construction 4.2 million SF delivered in last 12 months - 7.1 million SF underway
5. 18% vacancy - 3% subleases available
6. Rental rates fell 0.2%

Bottom line for me is I still don't see the basis for a headline like DFW office market rebounding. I still think companies overall will continue to shed space. That should keep downward pressure on rental rates. We aren't seeing them fall much, however.