The Dallas-Fort Worth (DFW) commercial real estate market continues to demonstrate robust performance across various sectors as we move into 2025. This comprehensive update provides insights into the current state of the office, industrial, retail, and multifamily markets, along with relevant regulatory changes affecting the region.
With so much going on and all of the year-end reports and data coming out, this is a must-read report for commercial real estate investors and industry professionals alike.
Let’s dig into the touchy subject – the office market – with some good news.
The DFW office market showed incredible signs of recovery towards the end of 2024, setting a positive tone for 2025. According to a Savills research report, leasing activity in Q4 2024 increased by 18% compared to the same period in 2023, with approximately 3 million square feet of office space leased.
This uptick can be attributed to the region’s strong population growth and business-friendly policies, which have bolstered office demand across diverse sectors including finance, healthcare, legal, architecture, and technology. The implementation of return-to-office mandates by many companies has also contributed to the strengthening office market.
Also, in the Annual Site Selectors Survey out by Site Selection Magazine, Dallas-Fort Worth was chosen as the number one preferred best city for headquarters.
Having access to an innovation or technology hub was marked as either “somewhat important” or “extremely important” to 78% of survey respondents. When asked how electric power factors into the decision, responses included, “It is THE driving factor,” and “If you don’t have available power, you are going to get cut.” Finally, when asked what the three most important elements of a state business climate are, the answers were definitively: workforce, state and local tax policy, and the cost of living.
To sum it up, all of this bodes well for Dallas-Fort Worth’s economy and commercial real estate market as we should expect to see more company moves to the region in the near future.
The industrial sector in DFW continues to thrive, solidifying its position as a key player in the national market. Earlier in 2024, CommercialSearch ranked DFW as the top metro in the nation for distribution and warehousing. This strength is further evidenced by the market recording over $3.3 billion in sales through Q3 2024, the most in the United States, surpassing even the Bay Area.
A notable trend has emerged in the absorption rates of properties based on their age. CBRE reports that newer properties, specifically those constructed after 2022, experienced over 200 million square feet of positive absorption, while older properties (pre-2000) saw more than 100 million square feet of negative absorption. We’ve seen this in the office market, now we’re seeing the same trend when it comes to preferred industrial space, too.
But, a significant challenge looming on the horizon for industrial tenants is the large amount of impending lease renewals. CompStak data indicates that over 27% of current industrial leases are set to expire in 2025 and 2026.
Tenants with expiring leases in 2025 may face substantial rate increases, as current market rates are approximately 75.7% higher than the rates in expiring leases. This situation could lead to significant cost pressures for businesses in the coming years.
The data center subsector of the industrial market in DFW is experiencing significant growth, cementing the region’s position as a major player in this space. One industry professional even calls data centers the new “oil of Texas.” JLL’s mid-year 2024 report ranks DFW third in the country for colocation data center space. In the first half of 2024 alone, the region absorbed 131 megawatts of power and had 3,091 megawatts planned.
Major developments in this subsector include a joint venture between Provident Data Centers and American Real Estate Partners’ PowerHouse Data Centers to build one of the largest data center campuses in the U.S. on 768 acres in Grand Prairie. Additionally, Microsoft is developing four data centers and QTS Realty Trust LLC is planning three in Irving, with both companies receiving 50% property tax reductions for a decade, as reported by the Dallas Business Journal.
However, this rapid growth is not without challenges. The expansion of data centers brings into question the possible strain on the existing power infrastructure, necessitating upgrades to Texas’s transmission infrastructure to support increased energy capacity. The Electric Reliability Council of Texas is currently assessing infrastructure needs to facilitate these large-scale developments.
The retail sector in DFW demonstrated remarkable resilience and growth in 2024. According to Weitzman’s annual forecast event, 1.5 million square feet of new retail space was delivered in 2024, with nearly half (696,000 square feet) dedicated to traditional grocers. This focus on grocery-anchored developments has paid off, with occupancy at grocer-anchored community shopping centers reaching a record high of 96.4%.
The total retail inventory in DFW now approaches 200 million square feet, with less than 10 million square feet vacant at the end of 2024. Wow. This represents a significant improvement in vacancy rates, which have decreased by more than 40% since 2020.
And notably, according to CoStar, the retail leasing landscape is experiencing a significant shift. Service-oriented businesses are now occupying a larger share of newly leased retail spaces than at any point since 2019. If these trends persist, 2025 could mark a turning point where service-based tenants surpass goods-based retailers in terms of newly leased store space. Service-based retailers include food services, fitness, and healthcare.
Restaurants, gyms, and clinics are driving this shift. “Rising demand from service-based tenants highlights the evolving role of retail spaces. Once a hub for traditional shopping, retail environments are increasingly becoming destinations for experiences and essential services,” reports CoStar. Owners of retail properties should take note of this development, as properties may need to be updated to support and accommodate the service tenants needs and their consumers’ needs, who are looking more for experiences than goods as of 2025.
The multifamily sector in DFW remains strong, driven by various economic and lifestyle factors. A survey conducted by Knightvest Capital revealed that high homeownership costs are the primary reason for renting, cited by 63% of respondents. Other significant factors include lower maintenance and repair responsibilities (59%) and enhanced flexibility to relocate (34%). The impact of interest rates on home-buying decisions continues to be significant, with 60% of respondents indicating they would be more likely to purchase a home if rates dropped, though this figure is down from 70% in the previous year.
Market trends in the multifamily sector show that urban-to-suburban migration patterns have largely reverted to pre-pandemic norms, as reported by Moody’s CRE. And, Apartment.com’s report suggests that the gap between supply and demand appears to be narrowing, with 133,300 new units added in Q4 2024 and 113,200 units absorbed during the same period.
CoStar analysts are forecasting that 29 major U.S. multifamily markets will see average rent growth exceeding their five-year pre-pandemic annual average growth rate, “a strong sign that these markets have shifted into rent growth expansion.”
In addition, the Federal Housing Finance Agency’s (FHFA) decision to increase agency multifamily loan purchase caps to $73 billion per agency in 2025, up roughly 4% from 2024, indicates expectations of stronger multifamily financing activity, which is great news.
Finally, according to CoStar, the multifamily real estate sector in particular is showing signs of recovery and stabilization. The second quarter of 2024 marked a positive turn in year-over-year apartment sales figures. Analysts predict that the vacancy rates are likely to reach their peak between late 2024 and early 2025. The market is expected to then see cap rates peaking in the fourth quarter of 2024, coinciding with a low point in rent growth. These trends suggest that the multifamily sector is “once again leading the way in recovery” among all property types in the commercial real estate market.
Recent regulatory changes in Texas will impact the commercial real estate landscape. Texas officials now face criminal charges or fines for failing to disclose owned or rented properties in their annual personal finance statements, as reported by KVUE. Additionally, cryptocurrency mining data centers will soon be required to register with the state and submit detailed disclosures about their energy use and operations. These regulatory updates aim to increase transparency and manage the growing energy demands of the tech sector.
Recent reports from multiple sources highlight a growing concern among commercial real estate investors: the dual threats of cybersecurity breaches and natural disasters. These risks are rapidly reshaping investment strategies and due diligence processes across the industry.
CoreNet Global, a leading trade association, reports a significant trend for 2025: investors are expected to dramatically increase their engagement with third-party auditing firms. These auditors will be tasked with evaluating property managers’ preparedness for potential catastrophic events that could impact real estate assets.
The urgency of this shift is underscored by ongoing natural disasters. As of the latest update, California wildfires continue to rage, with AccuWeather Inc. estimating damages and economic losses at a staggering $57 billion. This figure could escalate significantly if the fires persist, emphasizing the critical need for robust disaster preparedness in property management.
This intensified scrutiny reflects investors’ growing recognition that both cybersecurity and natural disaster readiness are now crucial factors in real estate valuation and risk assessment. Property managers are under increasing pressure to demonstrate comprehensive strategies for mitigating these threats.
The trend towards more rigorous due diligence is driven by the realization that these risks pose significant threats to property values and operational continuity. As a result, investors are likely to prioritize properties and managers that demonstrate proactive approaches to risk mitigation. This includes the adoption of advanced technologies, such as AI-driven models for risk forecasting and damage prevention, which can help protect both people and physical assets as well as long-term effects on a company’s reputation and standing.
As we move into 2025, the commercial real estate landscape is likely to see a marked increase in environmental and cybersecurity due diligence. This new era in real estate investment criteria emphasizes the importance of resilience and adaptability in the face of evolving threats, reshaping the way investors evaluate and manage their real estate portfolios.
The Dallas-Fort Worth commercial real estate market continues to exhibit strength and resilience across various sectors as we move into 2025.
According to reports by Globest, the closing months of 2024 brought encouraging signs for the DFW economy, setting a positive tone for the commercial real estate market in 2025. Consumer confidence saw a notable uptick, with sentiment rising 5% in November and December, reaching its highest year-end level since 2020. Simultaneously, small business owners displayed increased optimism, as evidenced by an 8% surge in the Small Business Optimism Index in November, also marking its strongest showing for that month in four years. These enormous improvements in both consumer and business sentiment suggest a promising start to 2025 for the DFW commercial real estate market.
That, coupled with the region’s strong population growth, business-friendly environment, and diverse economy continue to drive demand across all commercial real estate asset classes, positioning DFW as a key market to watch not only in this coming year, but for decades to come. Here’s some additional information to prove that point.
According to a report from Manhattan Institute’s City Journal, demographic projections indicate D-FW could reach a population of 10 million in the 2030s, surpassing Chicago to become the third-largest metropolitan area in the United States. The region’s economic strength is further underscored by its high ranking in economic freedom among large U.S. metro areas, based on an index developed by economists at SMU’s Bridwell Institute for Economic Freedom. This index considers factors such as tax levels, government spending, and labor regulations. And, DFW stands out for its growth-friendly land-use policies, as reported by researchers at the University of Pennsylvania’s Wharton School.
The same report also highlights DFW’s growing importance as a financial hub, solidifying its position as America’s third-largest financial center. This trend is expected to be further reinforced by the planned development of the new “Texas Wallstreet” in D-FW.
Successful growth in the D-FW region can be significantly attributed to the proactive approach to infrastructure development, including building out infrastructure ahead of population growth, and creating “plug-and-play” opportunities for relocating firms.
Overall, DFW’s economy is characterized by its remarkable diversification, setting it apart from other large metro areas.
While the region faces some challenges, this economic diversity, combined with its other strengths, is what positions DFW for continued growth and success for both the short- and long-term.
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