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Friday, January 23, 2015

2014 in Review: The Dallas Office Market

By: Greg Langston (Dallas)

There’s no better way to start off the new year than by taking a look back and reviewing the one we just had. While the Dallas commercial real estate market as a whole had a strong 2014, nowhere was this success more notable than in the region’s nation-leading office market.

According to DTX, Dallas had the fourth highest amount of net office leasing in the country last year. With over 4 million sq-ft of office space leased, the Dallas market grew at an average rate of 5.5 percent, with growth ramping up further during the fourth quarter. Overall, there is more than 6 million sq-ft of office space currently being constructed in North Dallas, which is the highest figure for the region since the ‘90s.

“If one annualizes the second half of 2014, the office sector has been absorbing space at nearly twice its historical average,” says economist Kevin Thorpe.

On a similar note, last year saw record low vacancy rates. By the end of the year, Dallas office vacancy rates were down to 16 percent, with overall commercial vacancy in North Dallas hovering around 9 percent. This comes thanks, in no small part, to record-breaking leasing numbers: 2014’s total of nearly 5 million sq-ft of leased space was the region’s highest in fifteen years.

Overall, the Dallas office market had a stellar year, with leasing and construction rates both nearing record levels. Furthermore, the notable acceleration of growth that began in the second half of the year seem to point to another strong year of growth for the region.

That being said, some analysts are cautious about projecting a repeat year of record growth. In a piece for the Dallas Morning News, Steve Brown points to two major factors that could limit further growth in the region. The first is a potential federal interest rate hike that could place a damper on new construction. The second is perhaps more worrying: falling energy prices. While the energy sector has been a boon for the region over the past several years, falling oil prices could have a broad negative effect on the local economy.

Regardless of these factors, the Dallas office market experienced a top-notch 2014, with all indicators leaning positive. While it remains to be seen if this growth continues, record-breaking vacancy and construction numbers reflect the rising economic fortunes of the D-FW market.

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