3 Impacts All This New Office Supply Is Having On Fundamentals

7-6

DFW loves new.

Younger Partners Research Director Steve Triolet delved into the impact of Dallas’ huge office pipeline on the market and found that deliveries — 20.1M SF of Class-A and 3.8M SF of Class-B office has come online since 2013 — are shaping the city in a few ways.

1) Rent Explosion

The delta between Class-A and Class-B office rents is widening as new supply sets new bars for pricing. Historically, there was a $4 to $5 gap per square foot between what tenants paid for a top-tier building and a Class-B one, but that has been increasing over the past five years, Triolet said. The delta is now $8/SF.

2) New-Build Is Low-Risk, But Could Hurt Everyone Else

The best performing submarkets are typically the ones with the newest buildings, and those properties are almost guaranteed to do well. “Even in an overbuilding situation, it’s rare for the newest buildings to go into distress,” Triolet said. “The properties that struggle the most at almost any point in the business cycle are the older, outdated properties.” Even with a growing discount on pricing, these properties are more often struggling to attract tenants.

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