Market expectations and reality

by
Notes from our researcher, Steve Triolet

2010 has come and gone, and like many years, there has been a stark contrast between what we thought was going to happen and what really happened.  This holds true for the Dallas Cowboys 2010 season (with their Super Bowl aspirations before the season began) and for the Dallas office market (which was expected to perform poorly throughout the year).

When I look back at both, there’s one large parallel between the two – they both changed dramatically halfway through.  For the Cowboys, did anyone still have any hope of anything positive happening after a one and seven start?  The coaching change did help, the cowboys didn’t go undefeated thereafter, but they were competitive for the remainder of the season.  For the Dallas office market, things looked relatively bleak at the beginning of 2010.  The recession which, had been slow to hit Dallas in comparison to most parts of the country, was still weighing heavily on the commercial real estate sector. For many in the business world there was a secret fear that the worst for Dallas was still yet to come – that we would be as adversely impacted as the rest of the country, but just at a later date.

Dallas was certainly impacted by the national recession.  At mid-year, the total vacancy rate for Class A & B office product was 24.8 percent and the total net absorption was a negative 914,343 square feet (downsizing by tech companies in the Richardson/Plano area being the largest contributors).  Average asking rental rates were in a steady decline, hovering at $20.72 per square foot (full service gross).

In the second half of the year, however, due to a combination of no new office construction, modest job growth, corporate relocations, and an increase in leasing activity, the market has appeared to have turned the corner.  The total vacancy rate at year-end was 23.6 percent, net absorption for the year was a positive 479,116 square feet and rental rates, though not yet rising on a weighted average basis, have stabilized at $20.34 per square foot.  Rents are actually showing the first signs of increase with a handful of landlords raising their on properties that have seen significant rises in occupancy.  Given all the available facts, things look better for 2011 whether you’re a Cowboys fan or just a member of the Dallas business community.

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