DFW’s office rents – asking versus effective rates during the last recession

Tracking asking rates doesn’t tell the whole story when markets are shifting

July 20, 2020


  • March 2020 was a distinct turning point in the economy, bringing speculation about when rental rates would turn down.

  • In the last four recessions, DFW asking rents reached their greatest decline 3 years after the economy first slowed.

  • Texas’ most serious downturn was in the 1980-90s when it was hit by a double-dip recession, first with the decline in oil prices, then with the S&L collapse and tax law changes. Office overbuilding in DFW exacerbated the steep rent decline, which took 9 years to recover. Significant concessions became common to keep assets economically viable.

  • Asking rents are only half of the story. As owners hold asking rates steady or even allow them to drift up slightly in the early stage of past recessions, concessions increase to make deals.

  • During the Great Recession, it took a year for DFW’s asking rates to decline. At the same time, tenant improvement allowances increased $5-10 in the first two years and free rent increased by 2-5 months for a five-year term. Combined, these concessions reduced asking rates by $3.75 per square foot in the downturn’s second year.    

  • Total concessions reached their highest point about 2 years after the downturn began. As asking rental rates declined, concessions moderated.

  • Based on our analysis, TIs returned to their baseline, pre- recession level after the second year, but free rent inched up a couple more months through 2012.

  • We expect this current downturn to follow a similar progression.  Between first and second quarter, asking rates actually inched up slightly. Although the market has suffered a significant economic shock, the depth of the shock, duration, and impact to office tenants is uncertain.

  • In all likelihood, asking rates are will hold steady or only decline slightly near-term as owners and tenants begin to understand this economic cycle and a “market” is set where bid and ask rates become predictable. 

  • As in past cycles, concessions (a combination of above standard tenant allowances and free rent) will ultimately increase to facilitate a transaction’s close and become the bridge to the market’s recovery.