Dallas-Fort Worth’s empty office space soars to a record high

North Texas businesses have almost unlimited choices when it comes to office space.

A record total of offices is available in Dallas-Fort Worth. Counting sublease space and what’s being built in new buildings, more than 76 million square feet of office space is available.

That’s more than twice the offices in all of downtown Dallas’ towers, according to estimates from commercial property firm Transwestern.

The supply of vacant office space up for grabs in the area is up almost 25% since before the pandemic.

One of the biggest increases has been in sublease space — where companies still are paying rent but are hoping to rent out to other companies. An all-time high 11.4 million square feet of D-FW sublease space was on the market in the most recent quarter, Transwestern reports.

“In terms of absolute square footage, we’re at a record today,” Transwestern research manager Andrew Matheny said. “In terms of percentage of available office space, I think we’re approaching the 1980s records.”

It was back in the 1980s when D-FW office vacancies last soared due to rampant overbuilding and a banking sector collapse.

This time it’s a decline in office space usage since the pandemic that’s left North Texas awash in empty offices.

Most of the available office space — more than 10 million square feet of empty and sublease space — is in the downtown Dallas area, according to Transwestern’s third quarter study. Other large totals of empty offices are along the Dallas North Tollway corridor in West Plano and in Las Colinas.

The largest share of the vacant offices is in older and poorly located buildings.

“The majority of the vacancy resides in the B and C space, which has become mostly obsolete,” said longtime commercial property broker Jack Crews. “Most of the A and AA buildings are leasing and rates are rising in these buildings. Lots of old buildings need to come down and make way for new modern mixed-use developments.”

Developers are currently repositioning some of the older offices for new uses, including apartments and hotel rooms. But even proponents of these projects acknowledge this won’t be the answer for all out-of-date offices.

Robbie Baty, vice chairman in Cushman & Wakefield’s Dallas office, said businesses looking for D-FW offices have a lot of factors to evaluate — including whether to rent some of the millions of square feet of sublease space.

“There are substantially more attractive options available for tenants to consider,” Baty said. “The root cause for the abundance of sublease options and the increased vacancy in the office market is that tenants are requiring approximately 30% less space today than they did pre-pandemic.

“The result is well-appointed office space that is sitting vacant ready to be backfilled by someone else,” he said. “Decision makers are taking longer because they are trying to ascertain how much office space their companies will require for the short term and long term future with the new hybrid work model. All industries are affected by the way employees are now working and this has been hard for executives to determine how that will impact their office space needs.”

Businesses are being lured to make leases by some of the largest rental concessions the D-FW market has seen in more than a decade.

“With the lowered office space demand, landlords are increasing concessions to lure new tenants to their office buildings in the form of additional free rent and tenant improvement allowances,” Baty said.

While older buildings are sitting on the market, the newest D-FW office buildings are lining up new tenants.

About 4.3 million square feet of office space is under construction in North Texas. More than 20% of those buildings still on the way already have leases signed.

Rents in the next generation of D-FW office space are reaching record levels.

Space in the best and newest office buildings “is in very high demand and achieving very high rents never seen before in Dallas vs. all the other buildings which is seeing less demand and is now commodity space,” CBRE vice chairman Jeff Ellerman said. “There has been a flight to quality for those companies wanting their employees back in the office to have really attractive, cool space in the best locations.

“This is the case in every major market in the country.”