Economy
Dallas/Fort Worth (DFW) employment grew slightly at a pace of 0.1% year-over-year (YOY) to reach 4.3 million. Office-using employment in financial activities, information and professional services sectors grew 1.0% YOY and remained 19.6% above pre-pandemic levels. Population growth continued with over 113,000 new residents over the last 12 months, increasing 1.3% YOY.
Texas service sector firms noted improving conditions in Dallas Fed surveys in June. Company outlooks rebounded into positive territory while uncertainty fell back to average levels. Forward-looking indicators remained positive for commercial real estate with expectations for typical levels of capital expenditure and below-average employment growth over the next six months.
Demand
New leasing activity inched down to 2.9 million square feet (msf) in the second quarter. Take-up remained healthy across all size segments, with multi-floor commitments—30,000 square feet (sf) and larger—accounting for 921,425 sf or 32.1% of activity. Financial activities led new deals signed at 629,945 sf, followed by information at 252,303 sf and professional and business services at 198,300 sf. Year-to-date (YTD) leasing activity totaled 6.5 msf at the end of the second quarter.
Net absorption was positive for the sixth consecutive quarter at 1.1 msf. All building classes experienced quarterly occupancy gains for the first time since Q4 2021. The top three submarkets were Legacy/Frisco (431,184 sf), Las Colinas (268,618 sf) and Uptown/Turtle Creek (231,981 sf). YTD net absorption stood at 1.3 msf, the highest level since 2022.
Cushman & Wakefield expects net absorption to continue at a robust pace through the end of the year. The DFW market entered the third quarter with an additional 1.7 msf of net absorption teed up between known move-ins and move-outs, which would increase 2026 year-end net absorption to 3.0 msf, the strongest performance since 2017.
Supply
Overall vacancy fell for the fifth consecutive quarter, declining 50 basis points (bps) quarter-over-quarter (QOQ) and 130 bps YOY to 23.9%. Vacancy rates substantially improved in the Southlake/Westlake (-5.9% YOY), Legacy/Frisco (-4.7% YOY), and Preston Center (-4.3% YOY) submarkets. Class A vacancy tightened 190 bps YOY to 25.5%, with top tier buildings outperforming with vacancy falling 3.8% YOY in the Trophy segment and 2.3% YOY in the Tier I segment. Sublease availability remained near 6.3 msf, the lowest level since Q2 2020.
Construction activity ticked up to 2.2 msf but remained historically low. Only 318,749 sf of new office inventory is expected to deliver in 2026, the lowest level since 2012. Three buildings totaling 194,870 sf began foundation work in the second quarter: Fields West Buildings F and G (96,958 sf in Legacy/Frisco) and Westside Village (97,912 sf in West Fort Worth). User purchases, demolitions and conversions totaled 2.1 msf YTD, reducing competitive office inventory to its lowest level since Q1 2020.
Cushman & Wakefield Research expects office vacancy to decline further as demand outpaces supply. Overall vacancy will likely fall to 23.3% or lower by year-end 2026, as scheduled deliveries for the year totaled just 318,749 sf while known move-ins and move-outs yield net absorption of 2.9 msf over the same period.
Pricing
Average overall asking rents reached $34.17 per square foot (psf), increasing 2.3% YOY. Class A continued to outperform the market, increasing 3.1% YOY to a new record of $40.08 psf. The appearance of softening growth in the market's weighted average rent, which was below the 10-year average of 3.6% YOY, was due to the emerging shortage of top tier Class A.
Average rent growth at the property level—which better measures the degree to which asking rents change for tenants in the market—accelerated to 3.3% YOY in the second quarter, the highest rate since 2023. Overall rents increased in 26.8% of office buildings by an average 8.3% YOY while rents decreased in just 7.8% of buildings, mostly due to the addition of below-market sublease spaces. Pricing power appeared strongest in the submarkets of Preston Center (13.5% YOY), Far North Dallas (6.5% YOY), and Uptown/Turtle Creek (4.4% YOY).
Landlords continued to partially offset rent increases with concessions favorable to tenants. As of the second quarter, a new lease typically offers one month of free rent and a $5.00-$10.00 psf improvement allowance per year of term, depending on building quality, location, and occupancy.
