Dallas office developers may be overdoing it, new research report warns

  More than 7.6 million square feet of office building is underway in North Texas, but much of it is already leased. (G.J. McCarthy/Staff Photographer)

More than 7.6 million square feet of office building is underway in North Texas, but much of it is already leased. (G.J. McCarthy/Staff Photographer)

More than half of the office space being built in North Texas is already spoken for by tenants.

 

But developers may still be overdoing it with office construction, a new industry report warns.

The Dallas area is now second only to New York City in total office construction. More than 7.6 million square feet is being built in the area, according to a new report by JLL.

That’s enough for researchers at the commercial real estate firm to toss out a penalty flag over the prospect of overbuilding.

“Dallas, Houston, and New York are the three markets in which we anticipate supply to exceed demand,” JLL’s director of U.S. office research Julia Georgules said. “With the exception of Houston, the new supply in Dallas and New York would help to temper conditions and balance leverage a little more for tenants.

“So from their perspective, this is considered some good supply relief,” Georgules said. “They’d have new options for expansion, which in the case of Dallas seems like a good idea, but there’d be enough new supply that rents wouldn’t experience any spikes.”

Dallas-area average office rents have risen by more than 20 percent in the last five years.

In some areas where businesses are expanding and buildings have been in short supply, office costs are at an all-time high.

Meanwhile, office vacancy rates in North Texas are at the lowest point in more than a decade.

About 57 percent of the office space being built in North Texas is already rented to companies including Liberty Mutual Insurance, CoreLogic, Toyota and others.

Even so, JLL thinks the current volume of building will slow increases in rent in the area.

Office construction in North Texas is now at its highest volume since the 1990s.

Most of the Dallas-area construction is in Plano, the Irving area, Richardson and Dallas’ Uptown district.

Looking at the entire country, JLL said the current office construction cycle is lagging previous periods of widespread building.

“The numbers seem quite low when compared to previous cycles,” JLL’s report concludes.

About 88 million square feet of offices are being built across the U.S.

Along with New York and Dallas, other top building markets include Washington, D.C., Seattle and Boston.

Houston has 6.3 million square feet of office space being built and almost 60 percent of it is preleased to tenants.

But with the energy industry’s cutbacks, the amount of vacant space in Houston is growing and there are worries that a chunk of that new office space may go begging.