This year has seen high demand for offices in Dallas-Fort Worth, but whether construction can keep up long-term is still up in the air.
Meeting the demand for office space in the Dallas-Fort Worth region will require literally miles of office space to be built in the next decade, industry forecasting suggests.
In order to keep up with its current pace, the market will need to produce 15 million square feet of office space per year over the next decade, one report shows. That’s a construction feat that seems unlikely, and the prediction is questionable as people-to-square footage ratios are changing as a result of remote and hybrid office models.
With market forces such as corporate relocations creating job growth, the DFW office market will need to add about 150 million square feet of office space in the next 10 years, according to a recent report by Dallas-based commercial brokerage Whitebox that examined changes in the market over the past 20 years.
“I think it’s highly unlikely that we will have 150 million square feet of office space delivered over the next decade, despite the projected 675,000 new jobs coming to the metroplex,” said Brian Wilson, managing director of Whitebox’s Dallas division.
Job growth is expected to continue long-term, but the need for real estate could be muted as companies continue to find ways to cut corners and use their office spaces more efficiently.
About 675,000 office jobs are expected to be added to the metro in the next decade, according to the Federal Reserve Bank of Dallas. Attracting top talent to big corporations could mean offering flexible office space and remote work.
It is part of why so many companies are investing in bringing flight-to-quality to attract employees to the office while also building in places with high-end amenities and recreation.
“The mid-market companies that occupy about 3,000 square feet are working in the office and coming back to a more permanent schedule,” said a commercial broker from NAI Robert Lynn, who wished to remain anonymous.
Those corporate headquarters relocating to Dallas would be the companies less likely to conform to the standard ratios, the broker said. The actual ratio sits at about 152 square feet per worker, according to CBRE. Other reports show a range of 75 to 300 square feet. Is it even possible to build 150 million square feet of office space in Dallas by 2032, assuming a ratio of 300 square feet per office worker?
That would be a sixfold increase over how much has been built in the metro in the past decade.
Reaching the 202 million mark would require delivery of about 14-15 million square feet of office space per year, but the most the metro has put together in a year was 27 million all the back in 1985, according to CoStar.
Year-to-year numbers for the last decade have rarely exceeded more than 8 million square feet, and as of right now, the market has about 55 million square feet of inventory and 7.9 million feet in the pipeline.
While DFW has experienced a steady stream of positive office absorption and growth over this past decade, that growth only brought in about 25 million square feet by 2020, according to CBRE’s 2020 Office Market Study.
“While there are signs of a recovery in the office market, headwinds still remain,” a recent office report from CoStar reads.
“As a result of the pressures of increased work-from-home policies and the amount of sublease space available remains stubbornly high, CoStar is anticipating increased downsizing and more subdued net absorption in the long term,” the report reads.
Although the DFW might come nowhere close to 15 million square feet of office space per year, DFW’s office dynamics are changing, said Bob Kitchens, director of market analytics for the CoStar Group.
“With workplace occupancy still trending at around 45 percent per Kastle occupancy data, many occupiers expect to reevaluate their space needs,” he told The Real Deal.
DFW was still among the top cities in the nation leading return-to-office in October, making it more important than ever for tenants to consider whether they want to commit to long-term leases and what their needs should be.
Things are likely to change in the next decade, but as it stands, the DFW will need all the help it can get if it must reach this goal.
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