DFW Office Market Absorption Turns Negative, Vacancy Rate Inches Up, and Leasing Activity Declines in Q2 2025

EXECUTIVE SUMMARY

Q2 2025 in Review

The Momentum in the Dallas-Fort Worth office market slowed some in Q2 2025, with the total vacancy rate up by 20 basis points to 25.3%, though still lower by 30 basis points year over year. Flight to quality will continue to shape market dynamics as developers deliver new, amenity-rich properties, creating higher vacancies in older buildings in areas like the Dallas CBD, Mid-Cities, and LBJ Freeway. Leasing activity decreased from 4.0 million sq. ft. to 3.7 million sq. ft. Some of the notable leases included Gray Reed Attorneys & Counselors’ 85.400 sq. ft. lease at 1845 Woodall Rodgers in the Uptown/Turtle Creek submarket and Kemper Insurance’s 67,200 sq. ft. lease at 3400 at CityLine in the Richardson submarket. Total net absorption turned negative for the quarter, recording -284,587 sq. ft., with both Class A and Class B properties contributing to the total.

Construction deliveries for the quarter totaled 143,638 sq. ft., up significantly from the previous quarter, and the construction pipeline increased 15.8% over the quarter to 3.2 million sq. ft. Rental rates dropped marginally over the quarter but increased over the year to $31.29 per sq. ft. Class A gross rental rates hit a record high of $34.54 per sq. ft. and are forecasted to continue to rise. However, Class B rental rates increased slightly, averaging $24.31 per sq. ft.

MARKET OVERVIEW

Dallas Economic Update

Employment in DFW increased in May at an annualized 2.1% after rising 1.9% in April. Texas Job growth increased 2.6% in May. The growth of the payroll employment was strong, and Dallas-Fort Worth unemployment remained at 3.9% in May. The jobless rate was 4.0 percent in Dallas and 3.9 percent in Fort Worth, below Texas’s jobless rate of 4.1 percent and the nation’s rate of 4.2 percent. The most significant gains were in construction and mining, education and health services, and leisure and hospitality services, while employment slipped in manufacturing, professional and business services, and information services.

Due to negative absorption and increased deliveries, the total vacancy rate increased 30 basis points over the quarter to 25.3% but saw a decrease of 30 basis points over the past year. Submarkets with generally older inventory like the Dallas CBD, Far North Dallas, and Las Colinas have some of the highest vacancies (34.7%, 29.2% and 28.2%, respectively) as tenants have gravitated toward newer properties with more amenities, which are more highly concentrated in Uptown and other some of the northern suburban submarkets.

Construction Decreased and Deliveries Increased in Q2 2025

Construction deliveries for the quarter came in at 143,63893 sq. ft., which is up 297% from the 36,193 sq. ft. completed in Q1 2025. The under-construction pipeline grew over the quarter by 15.8% but was down 37% annually to 3.2 million sq. ft. Most of the pipeline under construction is in the Uptown/Turtle Creek submarket (69%), with the remainder situated in the Far North Dallas, Richardson/Plano, and South Fort Worth.

Leasing Activity Decreased Quarter Over Quarter, but Up Year Over Year

Quarterly leasing velocity, which is comprised of both new leases and renewals, stood at 3.7 million sq. ft. during Q2 2025, a 7.8% decrease over last quarter and up 23% from Q2 2024. Notable lease transactions in Q2 2025 include AT&T’s 179,700 sq. ft. lease at Lakeside Campus, Brown & Brown Insurance’s 41,300 sq. ft. lease at Legacy Town Center III, and Willow Bridge Property Company’s 39,200 sq. ft. lease at One Arts at 1722 Routh St.

Net Absorption Turns Negative for the Quarter

Net absorption—move-ins minus move-outs—was negative -284,587 sq. ft. in Q2 2025, significantly down quarter over quarter, but up year over year. Both Class A and B properties contributed to the negative absorption, with Class A recording -153,933 sq. ft. and Class B properties posting -130,654 sq. ft. in Q2 2025. Some tenants that moved in during Q2 2025 included United Football League moving into 111,400 sq. ft. in Ballpark Circle and Kemper Insurance taking 67,3,00 sq. ft. at 3400 CityLine.

Investment Sales Trends

CoStar Capital Market Analytics reports the cumulative 12-month sales volume at $439 million in the DFW office market. With 196 deals completed, the average transaction price currently stands at $167 per sq. ft. with an average cap rate of 7.9%. Notable recent sale transactions in Q2 2025 include

Shaddock Homes’ purchase of Park Center at 2400 N Dallas. The 236,600 sq. ft. property is 57% leased and recently underwent a Class AA renovation, including new entryways and upgraded finishes. The sales price was not disclosed. Also, DFW Land Real Estate purchased the Interchange Office Center at 19111 N Dallas Pky for an undisclosed amount. The property was 58% leased at the time of sale.

Overall Rental Rates up slightly for Both Class A and B Properties

The average gross rental rate for the DFW office market is $31.29 per sq. ft., remaining relatively flat over the past quarter, with a 0.2% decrease and a 2.0% increase annually from $31.34 per sq. ft. in Q2 2024. The Uptown/Turtle Creek submarket boasts the highest rental rates, with the overall average gross rent currently sitting at $56.29 per sq. ft. The lowest rental rate is $23.63 per sq. ft. in the North Fort Worth submarket.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]