Dallas-Fort Worth Retail net absorption triples quarter-over-quarter reaching nearly 1 million sq. ft.

EXECUTIVE SUMMARY

Q2 2023 in Review
By the end of Q2 2023, the overall vacancy rate in the Dallas-Fort Worth retail market tightened to 4.8%, down 10 basis points from 4.9% in Q1 2023. Net absorption tripled year-over-year to 956,537 sq. ft. in Q2 2023 from 396,458 sq. ft. in Q1 2023—in part due to the limited space and robust demand within the Dallas-Fort Worth retail market in recent months. Construction increased slightly to 4.5 million sq. ft. in the pipeline as of Q2 2023—70,516 sq. ft. was added to the market from the prior quarter. Although still strong, leasing activity decreased 24% quarter-over-quarter from 2.1 million sq. ft. in Q1 2023 to 1.6 million sq. ft. in Q2 2023. Overall retail triple-net average rates in Dallas-Fort Worth kept up with inflation, with a 10% increase from last year, currently standing at $19.45 per sq. ft.

Dallas-Fort Worth Economic Update
The Dallas-Fort Worth unemployment rate increased to 3.8% in May 2023, slightly up from 3.7% in April 2023. The metro’s jobless rate beat the national rate (3.7%) but was lower than the state’s rate (4.1%). As of May 2023, total employment in Dallas was 4.2 million. The Dallas-Fort Worth private hourly earnings dipped to $33.77 in May 2023 from $34.40 in April 2023. However, the Dallas-Fort Worth three-month moving average of hourly earnings ($33.99) was above the state average ($31.21) and the national average ($33.32).

MARKET OVERVIEW

Net Absorption Triples Quarter-Over-Quarter
Strong tenant demand coupled with constrained supply improved overall net absorption in the Dallas-Fort Worth retail market in Q2 2023. Occupancy rates remain high (95%), as tenants continue to backfill space left vacant in 2020. In Q2 2023, net absorption in the Dallas-Fort Worth retail market reached 956,537 sq. ft.—with 991,776 sq. ft. in direct space— tripling quarter-over-quarter from 396,458 sq. ft. in Q1 2023. This also marks the 11th straight quarter that the Dallas-Fort Worth retail market has recorded overall positive absorption. Moreover, the market has yet to experience negative absorption on the scale of Q1 2020, when it plummeted to -582,766 sq. ft.

4.5 Million Sq. Ft. In The Pipeline
Retail construction is at 4.5 million sq. ft. across 247 buildings, with 1.6 million sq. ft. (35%) available for lease. Year-over-year, construction increased slightly from 4.3 million sq. ft. in Q2 2022. The Far North Dallas submarket leads construction, with 1.6 million sq. ft.— or 35%— of all space under development, followed by the North Central Dallas submarket with 964,467 sq. ft. (20.8%). New construction starting in Q2 2023 included a 70,000-sq.-ft. retail center, High 5 Entertainment, at 1289 Johnson Road, and a 50,954-sq.-ft. retail center at 10051 Marsh Lane. The retail centers are set to deliver in May 2024 and November 2023, respectively. Deliveries increased 54% year-over-year from 492,572 sq. ft. in Q2 2022 to 759,924 sq. ft. in Q2 2023.

 Asking Rates Increase 10% Year-Over-Year
By the end of Q2 2023, the Dallas-Fort Worth retail overall triple-net average rates currently stand at $19.45 per sq. ft., up slightly from $19.07 per sq. ft. quarter-over-quarter, and up 10% year-over-year from $17.68 per sq. ft. This is quite a jump in average rates, given that triple-net average rates grew only 2% annually in the prior four years. On the quarter, the North Central Dallas submarket had the highest average rate at
$25.62 per sq. ft. On the other hand, the Southeast Dallas submarket had the lowest average rate at $12.78 per sq. ft. The likelihood of a significant increase in new supply in the near future remains low, potentially providing landlords with an extended period to continue raising rents down the line.

Alex Babcock
Senior Research Analyst
[email protected]
tel 713 275 9618