No one would argue that 2021 was a year of uncertainty for the Dallas office market. But that hardly makes this market unique: The office sector has faced uncertainty across the country since the COVID-19 pandemic first began making headlines in March of 2020.
The fourth quarter Dallas office report released earlier this week by JLL highlights this uncertainty.
According to JLL, Dallas’ 2021 office market vacancy rate remains higher than usual both because of new speculative deliveries and companies adjusting their real estate footprint as they adjust to work-from-home and hybrid work models. The Dallas office market ended 2021 with a vacancy rate of 25.5 percent.
As JLL says, 2021 started off promisingly for the Dallas office market as many companies planned to bring their employees back to the office. Both the Delta and Omicron variants scuttled these plans. Now, many companies are pushing their back-to-the-office plans even further into the future.
In a bit of good news, JLL reported that quarterly net absorption in the Dallas office market was positive in the fourth quarter of 2021, hitting 312,227 square feet in both Class-A and Class-B product. This marked the first time since the first quarter of 2021 that Class-B product here has contributed to positive net absorption.
Much of this absorption can be credited to Keurig Dr. Pepper’s 350,000-square-foot move-in at The Star in Frisco, Texas. JP Morgan Chase accounted for the greatest negative absorption this quarter with a 240,000-square-foot move-out from its Lewisville, Texas, location. This was the result of the company’s long-planned consolidation into its Legacy West campus in Plano, Texas.
For the year, though, the Dallas office market saw negative net absorption of more than 1.9 million square feet. Again, blame the COVID-19 pandemic for this.
What does the future hold for the Dallas office market? That’s tough to know. But JLL in its report said there are some good signs as 2022 begins. Office leasing activity has picked up and stood at 74 percent of 2019 pre-pandemic levels by year-end. Last year also produced more than 30 leases larger than 50,000 square feet, with Class-A buildings accounting for nearly 76 percent of these leases.
Several new office projects are set to deliver in early 2022. The hope is that while these projects might immediately cause office vacancy rates to rise in the Dallas market, they’ll cause the reverse in the long-term as they fill. One such property is Weir’s Plaza, a 12-story office building in the Knox/Henderson micromarket of Uptown. That building delivered in the fourth quarter of last year and is already 100 percent occupied.