Many market fundamentals shifting quickly back toward historic norms


EXECUTIVE SUMMARY

Q3 2024 in Review

The DFW industrial market remains stable, with the overall vacancy rate decreasing slightly to 9.5% as of Q3 2024. However, due to the recent increase in vacancy over the past few quarters, there is now a surplus of available industrial space. This has prompted landlords to become more aggressive with lease terms, leading to a drop in effective rental rates. Despite this shift, market conditions are still considered neutral, with neither landlords nor tenants having a significant advantage in negotiations. Construction activity has slowed dramatically, with both deliveries and the pipeline of projects under construction down by over 60% year-over-year. Leasing activity has also declined, though demand and supply are closer to historic norms.

DFW Economic Update

The Dallas−Fort Worth economy expanded in August, with employment bouncing back from the declines seen the prior two months. Average hourly earnings held steady but were above year-ago levels. Mass layoffs so far this year trail 2023 figures. Home sales dipped in August, and home prices held steady in the second quarter. In August, DFW employment increased 6.2 percent annualized after contracting for two months. Job growth was strong across the board, including in professional and business services, leisure and hospitality, information and financial services. Employment rose in every sector except government.


MARKET OVERVIEW

Vacancy Rate Decreases to 9.5%

The overall vacancy rate in DFW’s industrial market decreased slightly to 9.5%, decreasing 20 basis points from 9.7% in Q2 2024. For the different industrial property types, the total vacancy rate for Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 5.8%, 2.9%, and 10.8%, respectively. DFW’s industrial market is in currently categorized with “neutral conditions”—with a vacancy rate between 8% to 10%—meaning neither the landlord or tenants have a significant upper hand on overall lease negotiations.

Construction Deliveries and Construction Pipeline Both Down Dramatically Over the Past Year

Deliveries in the DFW industrial market decreased to 5.9 million sq. ft., this is down 69% from last year when 19.2 million sq. ft. was completed in Q3 of 2023. The under-construction pipeline is also down significantly, decreasing by 60% to 22.3 million sq. ft., which puts that aggregate amount underway only slightly above the historic norm for the market. Among the submarkets, South Dallas still accounts for the highest concentration of construction underway, with 4.6 million sq. ft. in the pipeline. With the highest vacancy rate among the major industrial submarkets, it is no surprise that South Dallas has the lowest average asking rate at $6.93 (30% discount from the overall market).

Leasing Down 18% From Previous Quarter

Leasing activity is down moderately over the past quarter (18%) and more significantly for the year (30%), as the amount of new construction coming to the market has moved back in line with historic norms. Notable recent lease transactions include Google signing two leases for a combined 2.2 million sq. ft. of industrial space in relationship to their data centers equipment needs in the Silver Creek Business Park in Fort Worth; Dick’s Sporting Goods pre-leasing 800,000 sq. ft. of distribution space in South Fort Worth; and USPS subleasing 636,480 sq. ft. of space at Pinnacle Park.

Demand and New Supply Balanced for the Quarter, Close to Historic Norms Once Again

Net absorption—move-ins minus move-outs—recorded 5.7 million sq. ft. for Q3 2024—down 39% from the 9.4 million sq. ft. recorded in Q3 of 2023, but much closer in the line to the historic norm for the market. Typically the market averages about 20 million sq. ft. of new construction deliveries and 20 million sq. ft. of net absorption on an annualized basis. Both of these metrics are about 10% above that norm. Flex space and Manufacturing space recorded net absorption of 79,298 sq. ft. and 2,110,960 sq. ft., respectively. Warehouse/Distribution properties still account for the majority of the net absorption with 3.5 million sq. ft. recorded for the quarter. Year-to-date, net absorption has totaled 15.5 million sq. ft.

Investment Sales Trends

CoStar Capital Market Analytics reports that over the past 12-month sales volume for DFW market totaled $782 million. This represents 853 properties that sold with an average of $151 per sq. ft. and an average cap rate of 6.7%. Notable recent sales transactions include Boxer purchasing the 1,228,350-sq.-ft. distribution facility in Justin for $103 per sq. ft. The property was 100% occupied by DHL Logistics at the time of the sale. Also, Clarion Partners sold the Westport Parkway Logistics Center in Haslet to James Campbell Company for $97.1 million, or about $110 per sq. ft. The two property distribution facilities were both completely occupied (by Iron Mountain, Costco and Hanes Geo Components) at the time of the sale and total 882,565 sq. ft.

Rental Rates Increase 8.8% Year-Over-Year

The average monthly rental rate for the DFW industrial market was $9.90 per sq. ft., up 8.8% year-over-year from $9.10 per sq. ft. The average monthly rate for Flex space stood at $13.85 per sq. ft., while the rates for Manufacturing space and Warehouse/Distribution space were $7.50 per sq. ft. and $9.05 per sq. ft., respectively. The Northwest Dallas Outlying and DFW Airport submarkets currently have the highest overall average rates at $13.06 per sq. ft. and $12.00 per sq. ft., respectively.


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

Deal Spotlight

Partners’ Hanes Chatham Jr. and Graham Dressel arranged the sale of a 13,500-sq.-ft. industrial property located at 155-165 Cole Street in the Dallas Design District.

Partners Real Estate arranges sale of 13,500-sq.-ft. industrial property in Dallas Design District Partners Real Estate

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