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Xceligent 2Q 2017 Dallas/Ft. Worth Industrial Market Trends.

Steve Brown

Published: 12 July 2016 1:23 PM

Fueled in part by the growth of Internet retailing, demand for warehouse and distribution space in North Texas continues to outpace new supply.

During the second quarter, net leasing for Dallas-Fort Worth warehouse space added up to 6.6 million square feet - one of the highest net leasing totals in the last decade, according to commercial real estate firm CBRE.

"A fair percentage of it is definitely e commerce related," said CBRE senior vice president Steve Trese. "Dallas is one of the most diverse economies in the country".

"And this year we are seeing a really diverse source of industrial deals."

Some of the largest warehouse leases during the quarter were made by FedEx Ground, MARS Petcare, Rheem and Marco Co., according to CBRE.

Builders delivered 6.2 million square feet of industrial space during the quarter. And more than half of the new warehouse buildings were already leased, CBRE found.

Almost 21 million square feet of industrial buildings remains under construction in North Texas, one of the highest warehouse building volumes in the country. The largest construction areas are Arlington, southern Dallas County and North Fort Worth.

"There is a lot of development going up," Trese said. "But quarter after quarter we keep leasing everything we are delivering and then some".

"It's the strongest continued market of my entire career," he said. "We have such incredible job growth and population growth in the area and that's what is driving the industrial market."

Even with the huge construction, the total vacancy for industrial buildings in the area has fallen to 6.4 percent in the second quarter.

Published: 11 February 2016 9:53 PM

North Texas industrial construction soared past 23 million square feet last year — one of the highest volumes in the country and a recent record for the area.

By comparison, only about 6 million square feet of office buildings are going up in the area. And less than 3 million square feet of new shopping space is in the pipeline.

The amount of warehouse and industrial space being built in the Dallas-Fort Worth area has increased 45 percent in the last year, according to commercial real estate firm Cushman & Wakefield Inc.

More than 75 percent of the warehouse space being built around the area is speculative construction. Fortunately for developers, about 45 percent of that is already spoken for by tenants.

But industrial leasing agents are betting that the pace of spec building starts in D-FW will slow this year and give the market a chance to catch up.

"We're seeing construction levels we haven't seen before, and distributing building sizes are getting larger," said Cushman & Wakefield's Mark Becker.

"Hopefully, we will keep up the leasing momentum, which is good for Dallas," Becker said. "But I would expect spec construction to slow down."

"There are some projects sitting on the ground that need to get leased up before new development starts."

So far, leasing activity by major companies looking for regional distribution space has gobbled up most of the new warehouse buildings going up in North Texas. More than 16.5 million square feet of net leasing was recorded in the D-FW area last year.

At the end of the year, most industrial building construction was along Interstate 20 and Interstate 45 in southern Dallas County — about 6.2 million square feet.

An additional 5.3 million square feet is being built near Dallas/Fort Worth International Airport in the Great Southwest and Centreport districts.

North of the airport, 2.4 million square feet of warehouse projects are in the works.

North Texas ranked second nationally in industrial building demand last year. Only Southern California’s Inland Empire in Riverside and San Bernardino counties had more demand for warehouse space.

Cushman & Wakefield says that U.S. warehouse vacancy is at a 15-year low. But economist Kevin Thorpe is expecting the market to slow a bit this year.

"The industrial sector does face significant headwinds going into 2016 related to the stronger U.S. dollar and slowing global growth," Thorpe said in a recent report. "The core of the U.S. remains solid enough to weather the storm, but demand for industrial space is expected to cool down this year."

Only 7.5 percent of North Texas warehouse space was empty at the end of 2015. The local vacancy rate has been cut almost in half since the recession.

But with short construction times and an iffy U.S. economy, D-FW's industrial building supply could quickly get out of whack.

"Up until now, the supply has kept up with demand," Becker said. "But I don't know how much longer we have got in this cycle."

"I think developers will start tapping the brakes in the second half of this year on new projects."

Published: 06 January 2014 4:19 PM

North Texas industrial building vacancies have dropped to the lowest point in more than 20 years.

And developers are busy starting work on dozens of new projects to meet the demand for warehouse space in the Dallas-Fort Worth area.

Overall warehouse vacancy in the area is now less than 6 percent — the lowest level in more than 20 years, researchers at commercial real estate firm Jones Lang LaSalle say.

"The fundamentals are now more solid than they were before the recession for continued growth in this market," Jones Lang LaSalle managing director Terry Darrow said Monday.

North Texas' industrial real estate market is one of the strongest in the nation. And developers are building millions of square feet of new warehouse projects.

That's a good trend, because major retailers and manufacturers including Quaker Foods, Restoration Hardware, automaker BMW, Ace Hardware and more are all increasing their warehouse footprint in the D-FW area.

During just the fourth quarter of 2013, net industrial building leasing in the area totaled more than 9 million square feet, according to Jones Lang LaSalle. Net leasing was more than twice what it was in fourth quarter 2012.

And for all of 2013, net leasing topped 17 million square feet.

"It is a reflection of those big projects where businesses are taking occupancy," Darrow said. "We have more companies that are going to take building occupancy this year that will make things continue to look good."

Developers are building more than 10 million square feet of additional industrial space, Jones Lang LaSalle reports. That compares with only about 1 million square feet in fourth quarter 2012.

About 40 percent of the current construction is speculative development, Darrow said.

"Developers are still pretty cautious," he said. "The real estate investment trusts are very cautious when they go to commit to new projects."

Published: 03 May 2012 11:21 PM

North Texas' apartment projects and the rebounding office markets are getting most of the headlines.

But an even bigger commercial property comeback is cooking away in the industrial building sector.

During the first quarter, the Dallas-Fort Worth area's net industrial building leasing totaled almost 1.5 million square feet.

That's the best first-quarter net leasing tally for this sector since 2007.

Most of the net leasing gains so far in 2012 have come in industrial projects in North Fort Worth and the mid-cities.

But most major warehouse districts saw increases in occupancy, according to the latest numbers from Cushman & Wakefield of Texas Inc.

"The strong leasing activity is expected to continue," said Cushman & Wakefield senior director Jean Russo.

Russo said so far there’s enough space still on the market here to satisfy demand for all but the largest industrial tenants.

The jump in first-quarter leasing was enough to push overall industrial building vacancy in North Texas to below 12 percent, and a handful of local warehouse markets now have vacancy percentage rates in the single digits.

Normally, this kind of low warehouse vacancy and leasing activity would be the signal to start another round of industrial building.

So far, that hasn't happened.

At the end of March, about 1.6 million square feet of industrial space was being built in North Texas. That amounts to three or four buildings.

With tight lending standards, developers aren't able to jump into the market with multiple groundbreakings for speculative buildings.

But that could change in a hurry in a business where lead times for building are short.

"Multiple developers can start speculative buildings very quickly because of ready building sites, and they need only about six to seven months' construction time," Russo said.

Jeff Turner, who heads the Dallas office for developer Duke Realty, said the window for warehouse construction is opening.

"There's decent chance someone in town will pull the trigger in 2012 on a large speculative building," Turner said. "Duke is not to that point yet, but I do believe someone will."

Low rents are also keeping the lid on construction. Overall, warehouse rental rates in the D-FW area have been flat for several years and so far show no signs of ratcheting higher.

Many lenders are going to want to see stronger project returns before they open their purses for new deals.

Published: 19 January 2012 08:43 PM

Don't look now, but the North Texas warehouse market has bounced back.

After two years of net declines, warehouse and industrial leasing surged in Dallas-Fort Worth in 2011.

Expanding and relocating tenants rented about 6.5 million square feet of industrial space in the area last year. That's the best net leasing North Texas has seen in four years.

And all signs point to a better year for the local warehouse market in 2012.

"I'm hearing about a lot of activity," said Jeff Turner, who heads the Dallas regional office for Duke Realty. "The market is sure looking a lot better."

Of course, that’s not tough to do, given the last few years.

In 2009 and 2010, industrial building occupancies in D-FW fell by more than 2 million square feet total because of business moves and consolidations, according to the latest statistics from Cushman & Wakefield.

But 2011's leasing totals have more than made up for those declines during the recession. And overall industrial vacancy dropped by more than a percentage point.

Net leasing for D-FW warehouses was higher than for office and retail buildings combined last year.

Developers and brokers say the market is poised to return to a period of strong leasing and construction.

"We are getting national attention from how the D-FW area has recovered," said Jack Fraker, vice chairman and managing director in CBRE Group's Dallas office. "Southern California and southern Florida are probably ahead of us" when it comes to the warehouse rebound.

"But a lot of national and regional distribution is being driven to Dallas, and we have good generic growth from our economy," Fraker said.

The D-FW area had the second-fastest-growing economy in the nation last year, behind only energy capital Houston. And the region is one of the fastest-growing population centers.

That means more people with jobs buying more stuff that has to be kept in warehouses at some point.

During 2011, the biggest increase in net warehouse leasing in North Texas was in industrial parks near Dallas/Fort Worth International Airport, with 3.2 million square feet.

The Inland Port district along Interstates 45 and 20 in southern Dallas County was second, with about 1.5 million square feet of net leasing.

Little warehouse space was under construction in North Texas at year’s end — fewer than 2 million square feet.

But that will soon change, industry leaders say.

"There is so much pent-up demand in some submarkets that is more than the available supply," Fraker said. "I would expect you will see some speculative development soon."

First, lenders have to loosen their purse strings.

And something has to give when it comes to warehouse rents .They’ve been basically flat for years; meanwhile, prices for land and construction are moving up again.

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