As many companies contract due to job losses and bankruptcy, many office space landlords are facing a high vacancy rate that is decimating their profits and forcing them to make huge concessions in order to win tenants.
"The strength of the Dallas-Fort Worth economy will return in 2010, though office operations will remain relatively weak through the end of the year," said Marcus & Millichap. "Concessions in the form of tenant improvements at Class A buildings are expected to be the catalyst for attracting office users to top-tier space through much of the year. Leasing incentives will reach levels last recorded during the building boom of the early 1980s."
Although it is debatable whether or not the Dallas-Fort Worth economy will bounce back this year, many landlords are offering free rent as one of the main incentives for wooing potential renters. Already leasing incentives have returned to the Dallas-Fort Worth office space rental market due to the large vacancy rate left by companies who have filed Chapter 11 bankruptcy, Chapter 7 bankruptcy or who have simply implemented job losses in an attempt to avoid bankruptcy.
According to some measurements, the Dallas-Fort Worth area's office space vacancy rate is 15 percent, a vacancy rate we haven't seen in many years. Could some of the office space landlords face foreclosure or bankruptcy because they aren't earning enough to repay their mortgages? Foreclosure and bankruptcy are very real possibilities for these landlords if they are not able to entice companies with their incentives.
And even if they are offering attractive incentives for companies who want to rent office space, they now face a new challenge -cheaper markets. Because many companies have downsized in bankruptcy and shrunk their workforce, many smaller and cheaper cities are fighting aggressively to attract the business of the few companies who are looking to rent more office space. It's a very real possibility that as companies come to the end of the rental agreements in the Dallas-Fort Worth office space rental market, they may consider relocating to other markets if the incentives are enticing enough.