Don’t look now—it’s a landlord’s market! Boy, the times, they are a changing. No longer is time on the tenant’s side. Quality available space is getting absorbed, with Uptown, Preston Center, Legacy Tollway, and Richardson submarkets seeing the most activity.
Tenant incentives could quickly become a thing of the past. The first to go will be early termination options; the amount of free rent is decreasing, too, and will disappear in the next year or so.
There have been several development projects announced in Uptown, the Arts District, Victory, and Frisco. Expect to see significant speculative development in the Legacy Tollway and Preston Center markets.
Consider the shifts that have occurred during the past year:
• Rental rates in Uptown have risen by over $1 per square foot in the last year, with vacancy rates below 10 percent.
• Preston Center rates are up about 50 cents to $1 since last year, with vacancy rates around 7 percent.
• Legacy market rates have moved over $1 per square foot, with vacancy rates close to 10 percent.
• Rental rates on the Tollway heading south from Legacy are considerably lower than the Legacy market, at $20 to $22 per square foot, up from the mid- to high-teens a year ago. Vacancy still is close to 15 percent.
• Richardson rental rates are moving up about .75 cents per square foot, and vacancy is near 15 percent.
As the markets change, tenants need to change their behavior.
If you can find the right building and location, negotiate now not later; leverage is going away by the day. As available space gets leased up, rental rates will rise. Rates never go up gradually—they spike! After rates spike, new development will start.
In a landlord’s market, longer-term leases favor the building owner, so if a long term lease is what you want, get moving. When development starts I’d recommend a five-year term with renewal options, so you can reset your rental rate if and when the market drops again.
A landlord’s market means we have job growth in North Texas. There is a lot to be thankful for, even though the cost of office space is going up!