Dallas Fort Worth Commercial Real Estate Market: October 2024 Analysis and Future Outlook
DFW Commercial Real Estate Market Overview
The Dallas-Fort Worth (DFW) commercial real estate market has shown promising signs of recovery in Q3 2024. As we approach 2025, the market is experiencing a gradual but steady revival, with increased activity across various sectors.
According to a recent report by PwC and the Urban Land Institute, the most vibrant markets currently are industrial and data centers, apartments and single-family rentals, and industrial storage.
The same report, titled “Emerging Trends for 2025,” has ranked Dallas-Fort Worth as the #1 commercial real estate market in the United States for 2025. This is particularly noteworthy as DFW hasn’t held the top position since 2019.
DFW’s strong performance is evidenced by its solid annualized returns of 7.9% over five years and 8.8% over ten years. These figures place DFW in the top quartile of performance in the NCREIF Property Index (NPI) for both periods, underlining the region’s robust and consistent growth.
Corporate Movements and New, Major Developments
DFW continues to be a magnet for businesses relocating from other states, particularly California. A recent announcement saw another California-based company making the move to Texas.
The company’s Founder and CEO, Krishna Kumar, highlighted their commitment to being at the forefront of a thriving tech ecosystem and leveraging the diverse talent pool in the area. This relocation is seen as strategic, enabling the company to better equip professionals with the skills required in an increasingly digital-first world.
Several significant development projects are also currently underway in the DFW area. A couple of those include Firefly Park in Frisco, which is expected to be a $2.5 to $4 billion project, according to the Dallas Business Journal. The development has received additional approvals to move forward. It will feature a mix of residential, commercial, and recreational spaces.
Another major development is River Central in East Fort Worth and Grand Prairie, a $2 billion project spanning 400 acres. This project will include a hotel, concert venue, retail spaces, townhomes and apartments, and open spaces. Developers anticipate breaking ground in 2025.
DFW CRE Sector By Sector Breakdown
Office Market Trends & Insights
The office market in DFW is experiencing mixed trends. Dallas saw 3.7 million square feet of leases signed in Q3, with positive net absorption. However, total DFW office vacancy increased slightly to 19.4% in Q3, according to the most recent data from CoStar.
Tenants are increasingly requesting TI (Tenant Improvement) allowances for buildouts. These allowances have nearly doubled since the pandemic, now averaging $60-$70 per square foot. In downtown Dallas, some properties like Harwood Tower are offering significant discounts on sublease rates, as low as $11 per square foot (triple net), which is a 54% discount compared to direct triple net rates in the submarket.
Despite these challenges, DFW’s office market shows some positive indicators. Rent growth in DFW is at 1.5%, outpacing the US national average of 0.9%. Market rents average $31.00 per square foot, offering better value compared to the U.S. average of $36.00.
It’s also worth noting that for the first time in a decade, no new, major office construction projects broke ground in Dallas last quarter, according to a report from JLL.
While the office sector is not expected to make a major rebound soon, several companies have announced plans to return to the office. A notable example is Amazon’s CEO requiring all employees to return to the office five days a week.
CoStar predicts that rent growth will recover in 2026 and beyond, indicating a potential turnaround in the office market in the medium term.
Industrial Sector News and Performance
DFW continues to receive the accolades, as it was also just named the top metro for distribution and warehousing in the United States by CommercialSearch.
The region accumulated a total of 62.2 points, surpassing its closest competitor by seven points. This achievement solidifies DFW’s position as the leading metro in this sector. Key factors contributing to DFW’s dominance include its large inventory size and rapid growth, strategic location at the crossroads of major interstate highways, extensive network of heavy roads (3,449 miles) suitable for logistics, flexibility to pivot between West and East coast ports, strong air freight capabilities centered around DFW International Airport (one of 17 airports in the metro), and the presence of two major inland ports.
Speaking of inland ports, a significant development for the region’s logistics capabilities was recently announced: the $262 million AllianceTexas Smart Port project.
This public-private partnership aims to connect the inland port with the larger Dallas-Fort Worth regional transportation network, supporting the supply chain in the southwestern United States.
The project, one of over 40 chosen to receive funding from federal infrastructure programs, is expected to redefine modern logistics hubs. Industry leaders anticipate that this development will support future growth, including new intermodal services to Mexico as companies seek to nearshore goods. Given that approximately half of all U.S. freight tonnage moves through Texas, the project is poised to play a crucial role in advancing the Texas Connected Freight Corridors Project.
To report on the performance of the overall Dallas-Fort Worth (DFW) industrial sector as of late, we are currently navigating a period of adjustment, experiencing high vacancy rates due to increased supply and new inventory.
Despite these challenges, the market shows resilience and potential for future growth. Current metrics reveal a vacancy rate of 9.8%, with rent growth at 5.2% year-over-year, down from 11% at the end of 2022.
The average rent for industrial space in DFW stands at $9.68 per square foot. Market performance fluctuated throughout the year, with slow net absorption in Q1, a significant rebound in Q2, and slightly sluggish activity in Q3. Nevertheless, industry experts unanimously agree that DFW is best positioned among comparable markets to absorb the influx of new supply and deliveries.
One segment outperforming the broader market is small bay industrial buildings, which represent only 5% of recent inventory additions. Spaces under 50,000 square feet show remarkably low availability rates, with an overall rate of 6.5%. In specific areas like Redbird Airport and the Western Lonestar/Turnpike area, availability rates are as low as 2%, according to CoStar. This trend highlights the strong demand for smaller industrial spaces in the DFW market.
Looking ahead, the outlook for the DFW industrial sector remains positive. Demand for industrial space is expected to continue rising, with supply and demand forecasted to stabilize by 2025. Following this stabilization, rent growth is anticipated to accelerate once again.
Retail Sector Developments & Performance
The retail sector in DFW is seeing notable developments and maintaining strong performance.
For instance, construction has begun on a significant project along Henderson Avenue, spanning a quarter-mile stretch. This development will feature 10 buildings and public spaces, totaling 161,000 square feet of space.
It includes 12,000 sq ft for restaurants, 75,000 sq ft for retail, and 74,000 sq ft for office space. The project is slated for completion in 2026 and is expected to revitalize the Henderson Avenue area.
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In terms of market performance for the retail sector, vacancies are at record lows of 4.5%, and DFW has had the highest net absorption of any U.S. market in the past 12 months.
Rent growth has remained at 4.5% or higher for 11 consecutive quarters, with an average rent growth of 4.9% for both the past year and three years.
Average rents are $23 per square foot, with premium locations like North Dallas and Frisco commanding $30 to $45 per square foot. Properties built after 2020 average closer to $29 per square foot, compared to $20 for older properties.
Experts remain optimistic about the retail market’s robust performance, predicting that even a significant decrease in consumer spending is unlikely to undermine its strong foundation. The sector is poised to maintain its momentum, showcasing resilience in the face of potential economic challenges.
Multifamily Market News & Insights
The multifamily market in DFW is experiencing increased demand but faces challenges due to new inventory.
The market has seen 26,000 units absorbed in the past year, exceeding pre-pandemic levels of 20,000. However, 40,000 new units were added in the same period, leading to a current vacancy rate of 11%, which is above the 10-year average of 8.2%.
Rent growth is currently negative at -1.4%, but rents are still 17% higher than 2020 levels.
Average asking rents for 3-star properties are $1,350, while 4 & 5-star properties command a $430 monthly premium at $1,780.
Experts anticipate that rent growth will remain flat or negative in the short term but expect a turnaround in 2025, potentially reaching 3% growth, according to CoStar.
DFW Economy & Job Growth
The Dallas-Fort Worth economy continues to show strength, albeit with some moderation in growth.
Since March 2020, the region has added 450,000 jobs, with 58,700 jobs added in the past year (as of August 2024), representing a 1.4% gain.
Key sectors driving job growth include education and healthcare (14,600 jobs), the financial sector (8,800 jobs, a 2.8% increase compared to a 0.1% national decline), and in third place is construction, followed by manufacturing.
The DFW unemployment rate stands at 4.1%, lower than both Texas (4.5%) and the national average (4.5%). The slight slowdown in growth is attributed to factors such as inflation, reduced consumer spending, recession fears, and political uncertainty.
DFW is currently ranked 6th among metro areas for job growth.
Conclusion: DFW CRE Market in Review
As we conclude this month’s market update for Dallas-Fort Worth’s commercial real estate sector, it’s clear that the region continues to demonstrate remarkable resilience and adaptability in the face of evolving economic conditions.
The DFW market’s top ranking in the “Emerging Trends for 2025” report underscores its position as a national leader in commercial real estate. The industrial and logistics sector stands out as well, with DFW cementing its status as the premier distribution and warehousing hub in the United States. The upcoming AllianceTexas Smart Port project is poised to further enhance this position, potentially reshaping the logistics landscape not just for DFW, but for the entire southwestern United States.
While the office market faces some challenges, particularly with increased vacancy rates and changing work patterns, there are signs of stabilization and potential recovery on the horizon. The lack of new construction starts may help balance supply and demand in the coming years.
The retail sector’s strong performance, characterized by low vacancies and robust rent growth, reflects the region’s economic vitality and consumer confidence. Major developments like the Henderson Avenue project promise to create new focal points for commercial activity.
The multifamily market, despite current oversupply issues, shows long-term promise. The anticipated return to positive rent growth in 2025 suggests that the market is likely to regain equilibrium as population growth continues to drive demand.
Underpinning all of these sector-specific trends is the overall strength of the DFW economy. While growth has moderated somewhat, the region continues to outperform many of its peers in job creation and economic diversification.
Looking ahead, DFW’s commercial real estate market appears well-positioned for continued growth and innovation.
The region’s strategic location, diverse economy, and ongoing infrastructure investments provide a solid foundation for future success. As we move towards 2025, stakeholders in the DFW commercial real estate market have reason for cautious optimism, tempered by an awareness of broader economic uncertainties.
The coming quarters will be crucial in determining whether the positive trends observed in recent months continue to develop into sustained, long-term growth across all sectors of the commercial real estate market. Most of the experts agree, things are looking up for commercial real estate.
As we navigate the ever-changing landscape of the DFW commercial real estate market, having expert guidance is crucial. M&D Commercial Group stands ready to assist you with their unparalleled market insights and extensive experience in the Dallas-Fort Worth area. Whether you’re looking to invest, sell, or lease commercial property, their team of seasoned professionals can help you make informed decisions and achieve your real estate goals. Don’t let market complexities hold you back – reach out to M&D Commercial Group today and leverage their expertise to maximize your opportunities in this dynamic market.
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