A bounce back in demand drives rental rates to new highs

EXECUTIVE SUMMARY

Q2 2024 in Review

While the DFW industrial vacancy rate dipped slightly this quarter to 9.7%, it’s still significantly higher than last year (up 290 basis points from 6.8% in Q2 2023). This is because even though demand for industrial space has been healthy, there’s been a surge in new construction. This new supply has outpaced companies’ leasing activity, causing vacancy rates to rise. As a result, the market conditions have shifted from favoring landlords to a more neutral position in five out of ten industrial submarkets. The amount of new industrial space coming onto the market in DFW has slowed down. Deliveries for this quarter were down 15% from the previous quarter and 16% from last year, totaling 13.8 million square feet. While this year’s deliveries (30 million sq. ft.) are still more than double the usual amount, there’s good news: the number of projects currently under construction is shrinking. The under-construction pipeline is now at 22.5 million sq. ft., which is only slightly higher than the typical level of 20 million sq. ft. Average asking rates continue to trend higher, being up 2% for the quarter and 9% over the past year, again reaching a new all-time high for the market.

DFW Economic Update

Employment in DFW rose 2.4% in May after climbing 4.8% in April. Job growth was mixed across the major sectors, with strong gains seen in construction, finance, and trade, transportation and utilities. Employment held largely steady in the education and health services and leisure and hospitality sectors but declined in information, professional and business services, and other services. The unemployment rate in DFW was unchanged at 3.8%.

The Dallas–Fort Worth economy expanded in May. Employment growth remained strong but moderated from April’s brisk pace. Average hourly earnings held steady, above year-ago levels, and inflation ticked up in May. Home sales dipped in May, and home prices rose in the first quarter.

MARKET OVERVIEW

Vacancy Rate dipped slightly for the quarter but up notably year over year

The overall vacancy rate in DFW’s industrial market decreased 10 basis points for the quarter to 9.7% but rose year over year by 290 basis points from 6.8% last year. Net absorption has been consistently positive over the past several years, but record levels of new construction deliveries has outpaced demand, and the vacancy rate has largely shifted from landlord favorable to neutral conditions for 5 of the 10 industrial submarkets. In addition, Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 5.7%, 3.9%, and 10.9%, respectively.

Both Under Construction and Deliveries Trending Back Toward Historic Norms

Deliveries in the DFW industrial market decreased to 13.8 million sq. ft., this is down 15% quarter-over-quarter and down 16% year-over-year. Year-to-date, deliveries amounted to 30 million sq. ft. which is more than double the historic norm, but the under-construction pipeline has been steadily trending downward over recent quarters and is currently 22.5 million sq. ft. (only slightly above the 20 million sq. ft. historic norm).

Leasing Up 8% From Previous Quarter

Quarterly leasing velocity—which is comprised of both new leases and renewals—stood at 15 million sq. ft. during Q2 2024—up 8% from 13.9 million sq. ft. last quarter. Year-to-date, leasing activity registered at 28.8 million sq. ft. Notable recent transactions include Google leasing 1,049,022 sq. ft. at 3400 Catherine Court in North Fort Worth, RJW Logistics Group leasing 649,398 sq. ft. at 2200 Berry Rd in East Dallas and US Lumber Group leasing 548,340 sq. ft. at 3210 Railport in South Dallas.

Net Absorption Bounces Back from Last Quarter’s Slump

Net absorption—move-ins minus move-outs—is at 9 million sq. ft. up 3.5% from 8.7 million sq. ft. in Q2 2023. Warehouse/Distribution space accounted for 8.7 million sq. ft.—or 97%—of the second quarter’s net absorption. Flex space and Manufacturing space recorded net absorption of 57,863 sq. ft. and 224,144 sq. ft., respectively. Year-to-date, net absorption has totaled 9.8 million sq. ft. Recent notable move-ins include Legendz Way taking 486,645 sq. ft. at Crossroads Logistics Park in South Dallas, Hithium Tech taking 483,874 sq. ft. at 20 East Trinity Pointe, and Keurig Dr. Pepper taking 389,000 sq. ft. at Trinity West in South Stemmons.

Investment Sales Trends

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]