‘Quite sluggish’: Texas office market off to slow 2023 start

BY BRANDI SMITH

Economic uncertainty has companies pumping the brakes on new office leases, which is boosting vacancy rates in Texas metro areas, including Dallas-Fort Worth.

“The office market remains in the doldrums right now. We had seen a slight increase in leasing activity toward the end of 2021 and the earlier part of 2022, but since the third quarter, we’ve seen activity slow down and leasing being quite sluggish over the past few months,” said Laila Assanie, Senior Business Economist for the Federal Reserve Bank of Dallas. “Overall, demand for office space remains quite sluggish in the DFW market and we have not seen the pace of recovery we expected this past year.”

There is an exception: new Class-A space is leasing up almost as soon as it’s delivered to market, inspiring investors and developers to rework existing buildings. For example, Stream Realty Partners recently announced it's providing leasing services for 104 and 106 Decker Court in Irving, which was recently purchased by New York and Miami-based privately controlled real estate development firm Sason. Rebranding the buildings as Cascade (I and II), the 97,855-square-foot complex is currently getting a $2.5 million makeover.

“At Cascade, we’re focused on creating an unparalleled boutique work environment that provides an engaging and sensory experience for tenants,” said Joshua Sason, Principal at Sason. “Cascade will look and feel more like a boutique hotel than an office property of old once our repositioning is complete.”

Plans include an outdoor pavilion “to encourage productivity and collaboration” between the two buildings, as well as a completely reimagined lobby and state-of-the-art athletic club.

“The vision that the Sason Organization has created will transform the market perception of not only the complex but the entire neighborhood,” said Stream Vice President Chase Lopez. “The cosmetic enhancements and on-site experience will be second to none. Stream is thrilled to partner with Sason on this redevelopment.”

The goal, no doubt, will be to lure tenants from their current spaces when the renovation is complete. That will leave space behind.

“The space that gets vacated, that’s much harder to fill,” noted Assanie. “There’s quite a bit of square footage in older buildings, such as class-B buildings. Those buildings and those spaces are much more difficult to fill up, which is why we have such a high vacancy rate in DFW.”

REDnews has also reported on a different kind of makeover: the switch from office to residential space. That’s currently happening on a relatively small scale.

“Typically those conversions are quite expensive and they come at a substantial cost,” she said. “Yes, we’re seeing some of that, but I don’t think it’s enough to meaningfully bring down the vacancy rate in DFW.”

Assanie is also watching the amount of sublease space available in DFW.

“It keeps on inching up every time we see a new set of quarterly numbers,” she said. “That does remain a concern going into 2023.”

Looking ahead, Assanie described the outlook as cautious.

“When economic uncertainty is high, companies tend to stay put and take a wait-and-see approach versus making any large commitments,” she explained. “The expectation is that companies will be hesitant to lease up space and that will likely keep activity weak to sluggish in 2023.”