The state of Dallas-Fort Worth office space may surprise you – Dallas Business Journal

It’s time for a quick commercial real estate true or false quiz:

1. Corporate America is squeezing employees into less and less space.

2. Tenants want greater flexibility and shorter lease terms than in the past.

The answer to each, contrary to what might be considered common knowledge in real estate circles, is "false," at least in North Texas.

That’s according to Steve Triolet, research director at Dallas-based Younger Partners.

Dallas-Fort Worth has more commercial real estate space under construction than anywhere else in the country when office, industrial, retail, multifamily and specialty properties like hotels and data centers are combined, Triolet told me during a recent visit to the commercial real estate firm’s office along the Dallas North Tollway.

But some of the assumptions about the Dallas-Fort Worth and national markets simply aren’t true, he and Moody Younger, the firm’s co-managing partner, said in an interview.

“It’s true that tenants want more flexibility, but there’s this assumption that lease terms are contracting a lot,” Triolet said. “So, I went through and crunched a bunch of numbers.”

He analyzed 1,600 lease comparisons in Younger Partners’ database and broke them into three size segments. See the chart in the attached slideshow.

Smaller size deals, those under 20,000 square feet and typically less than a full floor, averaged slightly less than five years long. The midsize deals of 20,000 to 50,000 square feet averaged about 7.5 years. And the big deals, those over 50,000 square feet, averaged 10 years.

Younger said the reason is that bigger deals are going into new buildings or build-to-suits, and not into pre-existing space.

“You have to have a huge (tenant improvements budget), and as a landlord, you have to have that long term,” Younger said. “You have to have the 10- or 15-year term. It just doesn’t make sense for you to do the shorter terms.”

In 2017, 95 percent of the net absorption of office space can be attributed to new construction, Triolet said. In one of the biggest deals, Toyota Motors (NYSE: TM) went into its massive build-to-suit North American headquarters complex in Plano last year.

Triolet also crunched numbers to see whether employers are squeezing more people into less space. The data showed that’s not necessarily the case.

The old rule of thumb has been about 300 square feet per employee. Some reports say that the ratio has dropped to about 175 square feet per employee.

That may be true in coastal markets, but Triolet’s data in North Texas show the average is 299 square feet per employee across DFW, and 318 square feet per employee in downtown Dallas.

“I think we are bucking the trend some,” Triolet said. “There is definitely a relationship between how much you pay in rent and how much you can squeeze the employees. Some of the coastal markets where the rent is much higher than us, they do squeeze them more.”

While private offices are disappearing and cubicle sizes are probably shrinking, that’s being offset by more and bigger conference and breakout rooms, nicer break room and other expanded common space, Younger said.

"That’s more cultural than efficiency driven," Younger said, noting out that workers and employers want to encourage more interaction in the office.

As for office space in the pipeline, the highest concentration of construction is in the Far North Dallas submarket, followed by the mid-cities and Las Colinas, Triolet said. All three submarkets have more than 2 million square feet of office space under way apiece.

While the mid-cities has not been one of the more active submarkets in recent years, both Far North Dallas and Las Colinas have already had millions of square feet of new projects completed recently, he said. Since 2013, DFW has delivered more than 24 million square feet.

Largest North Texas Multitenant Office Buildings

Ranked by Gross Leasable Square Feet

Rank Building Name Gross Leasable Square Feet 1 Bank of America Plaza 1,849,729 2 Renaissance Tower 1,738,979 3 Lincoln Centre 1,638,132 View This List

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