DFW Office Market Records Positive Absorption and Increased Leasing Activity in Q1 2025
EXECUTIVE SUMMARY
Q1 2025 in Review
The Dallas-Fort Worth office market remained stable in Q1 2025, with the total vacancy rate down by 10 basis points to 25.1%, though still higher by 30 basis points year over year. Flight to quality will continue to shape market dynamics as developers deliver new, amenity-rich properties in Uptown and northern suburban submarkets, creating higher vacancy in older buildings in areas like the Dallas CBD, Mid-Cities, and LBJ Freeway.
Leasing activity increased slightly from 3.8 million sq. ft. to 4 million sq. ft., with notable leases including Toyota Financial Services 241,452 sq. ft. lease at Southstone Yards and GEICO’s 165,107 sq. ft. lease at Galatyn Commons. Total net absorption turned positive for the quarter at 751,040 sq. ft., which would have been greater if not for the ongoing weakness in Class B properties, which posted 715,239 sq. ft. of net absorption in Q1 20-25. In contrast, Class A properties recorded 1.5 million sq. ft. of positive demand.
Construction deliveries for the quarter totaled 36,193 sq. ft., down significantly from the previous quarter, reflecting a broader decline in the development pipeline, which now stands at 2.8 million sq. ft., down 50% year over year.
Rental rates rose over the quarter and over the year, increasing to $31.34 per sq. ft. from $30.85 per sq. ft. in the previous quarter. Class A gross rental rates hit a record high of $34.42 per sq. ft. and are forecasted to continue to rise. Although Class B rental rates increased slightly, they remain flat averaging $24.23 per sq. ft.
Dallas Economic Update
Employment in DFW rose in December after contracting in November. Job growth grew at an annualized rate of 3.5%. Dallas employment grew at 4.4% in December, while Fort Worth grew at a slower pace of 1.5%. The largest gains were in financial activities and leisure and hospitality, while employment slipped in education and health services, construction and mining as well as other services. The unemployment rate in DFW fell to 3.9% in December.
MARKET OVERVIEW
Due to sparse deliveries and a pullback in demand the total vacancy rate remained relatively flat for the quarter, moving down 10 basis points to 25.1% but saw an increase 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 (33.0%, 29.0% and 27.7%, respectively) as tenants have gravitated toward newer properties with more amenities, more highly concentrated in Uptown and other some of the northern suburban submarkets.
Construction and Deliveries were Tempered for the Quarter
Construction deliveries for the quarter came in at 36,193 sq. ft., this is down 95% from the 682,531 sq. ft. completed in Q4 2024. The under-construction pipeline has been declining over the past few quarters and currently stands at 2.8 million sq. ft., down 49% over the past year. Most of the pipeline under construction is in the Uptown/Turtle Creek submarket (69%), with the remainder situated in the northern sub-urban submarkets, including Far North Dallas, Richardson/Plano and North Fort Worth.
Leasing Activity Increased Quarter Over Quarter, but Down Year Over Year
Quarterly leasing velocity, which is comprised of both new leases and renewals, stood at 4.0 million sq. ft. during Q1 2025, a 6% increase over last quarter, but down 16% from Q1 2024. Notable lease transactions in early 2025 include Toyota Financial Service’s 241,452 sq. ft. lease at Southstone Yards, GEICO’s 165,107 sq. ft. lease at Galatyn Commons and Sally Beauty Supply’s 139,068 sq. ft. lease at Liberty Mutual Campus on Windrose Ave.
Net Absorption Turns Positive for the Quarter
Net absorption—move-ins minus moveouts—was a positive 751,040 sq. ft. in Q1 2025, significantly up quarter over quarter and year over year. Tenant movement to newer inventory was a continued trend, with Class A properties having almost a million and a half sq. ft. of positive absorption (1,466,279 sq. ft.), while Class B properties continued to see negative demand, posting a -715,239 sq. ft. Notable move-ins in Q1 2025 included Ryan, LLC moving into 205,121 sq. ft. in their recently completed Ryan Tower in Plano and Merit Energy Company taking 96,874 sq. ft. at Two Lincoln Centre.
Investment Sales Trends
CoStar Capital Market Analytics reports the cumulative 12-month sales volume at $454 million in the DFW office market. With 391 deals completed, the average transaction price currently stands at $194 per sq. ft. with an average cap rate of 6.5%. Notable recent sale transactions in early 2025 include Forefront Commercial Real Estate, LLC’s purchase of 4331 Communications Dr. in Pinnacle Park. The 206,040 sq. ft. property was empty when sold for an undisclosed price. Also, Capital Commercial Investments, Inc. purchased the Intellicenter building in Regent Center for an undisclosed amount. The 200,987 sq. ft. building was 19.2% leased at the time of the sale.
Overall Rental Rates up slightly forBoth Class A and B Properties
The average gross rental rate for the DFW office market is $31.34 per sq. ft., up 1.6% over the quarter and up 1.8% annually from $30.85 per sq. ft. in Q1 2024. Newer Class A properties are at record highs, while commodity-type Class B properties continue to see moderate rate increases, helping to push up the overall average rental rate. The Uptown/Turtle Creek submarket boasts the highest rental rates, with the overall average gross rent currently sitting at $55.97 per sq. ft. The lowest rental rate is $20.91 per sq. ft. in the Northeast Fort Worth submarket.
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Steve Triolet
SVP of Research and Market Forecasting
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