Jeff Staubach
Across North Texas, the unofficial state bird of Texas is flying high again. Construction cranes are popping up all over, especially along the Dallas North Tollway.
With the slight loosening in credit, nearly 55 million square feet of positive net absorption and above-average national office employment levels (50,200 jobs in Dallas in a year-over-year comparison) have propelled a shift to action among the development community across key geographies.
Overall construction levels have increased from a low of 22.3 million square feet in 2012 to almost 33.6 million square feet at the beginning of 2012. As a development-friendly market, Dallas is expected to see speculative construction bring the market back to neutral conditions once significant new product is brought to market. (Click on chart for larger view.)
Take a minute to think about what these numbers are really telling us as brokers:
• The majority of construction activity across the United States is concentrated in nine markets, which account for 79.3 percent of the national total.
• Most recent construction starts are build-to-suits, but dynamics are shifting in markets, like Dallas, to spec construction.
• Although spec construction has ramped up over the past several months in many markets, the majority of spec construction is concentrated in New York, San Francisco, and Washington D.C., with levels over the next six months to rise in Houston, Silicon Valley, Austin, and Pittsburgh.
• With large blocks of space dropping to a minimum across most urban and even core suburban markets, the industry could see rent spikes over the next 24 to 36 months.
• Rents at spec buildings are currently priced at 15-20 percent above Current Class A market rent averages.
Jeff Staubach is a managing director at Jones Lang LaSalle. Contact him at jeff.staubach@am.jll.com.
1 comment
While new construction is ramping up…at much higher rents usually than market averages… now is when well located, but older properties need to have owners who reinvest and “reimagine” their buildings. Simply putting on a coat of paint or replacing carpet isn’t usally isn’t sufficient for many properties to compete with new product. Rather, major infrastrucure and cosmetic improvements not only can add decades to the life and lower operating expenses of otherwise dated buildings, but also make them more attractive to tenants…and substantially improve their values.
In most markets, if you’re not shiny and new, you better be shiny and renovated!