Dallas - Fort Worth Industrial Summary - 4Q 2022
Dallas-Fort Worth is the fourth-largest metropolitan area in the United States, with a population of 7.9 million. It is also one of the fastest growing, adding 1.2 million new residents over the last decade. The metro surpassed Los Angeles as the second-largest industrial market with an inventory of over 1 billion SF, just behind Chicago's 1.3 billion SF. The industrial sector has thrived over the last decade. The metro has benefited from diverse demand drivers, from e-commerce, manufacturing, and third-party logistics firms, all looking to increase their existing presence or enter the market. One of the leading industrial brokers describes the market as, "The market has been on fire for the last 3 or 4 years, one year bigger than the next. It is ending; there will be a normalizing in the market."
E-commerce giant Amazon has made an outsized impact on the market in recent years. It is now the region's largest occupier of industrial space with 16 million SF; nearly half of that presence is composed of large distribution facilities greater than 1 million SF. To put the magnitude of Amazon's presence in perspective, the second-largest space occupier is Home Depot, with 8.3 million SF. In addition, shipping firms DHL and FedEx each have about 4.5 million SF.
Over the past 12 months, developers have added 37.2 million SF. However, vacancies have remained stable at 5.3% due to a combination of impressive demand for speculative projects and several significant build-to-suits delivered. The metroplex currently leads the nation in construction, with 86.3 million SF underway. Of the current construction pipeline, there is 73.6 million SF currently available, with 46 spaces 500,000 SF or greater. The largest is a 1.4 million SF distribution facility in the Eagle 35 industrial park, being developed by Trammell Crow. CoStar forecast deliveries to outpace absorption in 2023 with 90.5 million SF of deliveries and 71.4 million SF of net absorption. As a result the vacancy rate is anticipated to increase to just over 6%.
While demand is spread throughout the entire metroplex, three submarkets captured just over 50% of the positive net absorption over the last 12 months, SE Dallas/I-45 (8.4 million SF), NE Tarrant/Alliance (4.5 million SF), and S Central Tarrant County (4.2 million SF). For example, JLA Home, a home furnishings company, now occupies 1.1 million SF in the Dalport Trade Center in Wilmer. Panattoni Development built the $37.6 million dollar build-to-suit.
At 12.9%, annual rent is positive and is among one of the strongest among large metros and is expected to remain positive moving forward, with double-digit rent growth until 23Q2. The highest levels of growth are found in the industrial strongholds of E DFW Air/Las Colinas (15.8%), Upper Great Southwest (15.8%), and Eastern Lonestar Turnpike (15.5%).
Sales volume has remained strong. As of late December, 1,500 transactions totaling 82.1 million SF. The price per SF has increased from $111/SF in early 2022 to $120/SF.
Third-party logistics providers, national retailers, and consumer packaged goods firms continue to look to Dallas-Fort Worth as a critical hub for their distribution networks. These include household names like Target, Nike, and Samsung. From January to the end of December, tenants signed 2,200 new leases, totaling 63.1 million SF. One hundred and twenty-five leases were 100,000 SF or greater. These large deals account for 60% percent of the total leasing. The SE Dallas/I-45 Submarket reported 16 deals over 100,000 SF, totaling 10 million SF. This is primarily due to the quality and size of the spec space built in the submarket. For example, before the building was completed, home furnishings retailer Crate and Barrel signed a 698,800 SF deal in the Sunridge Business Park. Scannell was the developer of the modern spec building. The property features 40-foot clear heights and cross-dock loading.
The strong population growth has intensified the race among grocers for the $24 billion in annual grocery spending in the metro. For example, San Antonio-based H-E-B has entered the market with several new stores. Sprouts recently opened their first stores as well. In response, several existing grocers, Kroger, Walmart, Target, Trader Joe's, and Albertson's, are updating existing locations or looking to increase their footprints. This activity also impacts the industrial market as companies need more warehouse space and efficient ways to get products directly to consumers and their stores. For example, Walmart has invested $800 million in two new facilities in Lancaster. The company has broken ground on a 1.5 million SF e-commerce fulfillment center and a 730,000 SF distribution center. Both projects are expected to deliver in 2023. Kroger is also building a 350,000 SF automated online grocery facility. In addition, H-E-B has recently moved into a 620,000 SF space in the Intermodal Commerce Park.
As companies reevaluate their supply chains following the recent passage of the CHIPS Act grant, the metroplex is well-positioned to take advantage of future opportunities. Several semiconductor manufacturers already have a presence here. These include the inventor of the first integrated circuit, Texas Instruments, and other firms, including National Semiconductor, Maxim Integrated Products, and STMicroelectronics. The market has already started to reap the benefits. Texas Instruments is expanding its operations with 102,000 SF under construction in Plano. The company has broken ground on a $30 billion campus north of Dallas in Sherman. TI considered putting the four-factory campus in Singapore before deciding on North Texas. In addition, GlobiTech announced it would also build a $5 billion plant in Sherman. When fully staffed, the facility will create 1,500 new jobs and produce more than 1 million silicon wafers monthly. Construction is expected to begin in 2023.
The information contained herein was obtained from CoStar; however, Bradford Companies makes no guarantees, warranties, or representation as to the completeness or accuracy thereof. The presentation of this property is submitted subject to errors, omissions, change of price or conditions prior to sale or lease or withdrawal without notice.