DFW Industrial Market Stabilizes Amid Declining Construction and Leasing Activity in Q4 2024
EXECUTIVE SUMMARY
Q4 2024 in Review
The Dallas-Fort Worth (DFW) industrial market experienced a mixed performance in Q4 2024, characterized by stable vacancy rates, a slowdown in construction activity, and healthy yet tempered leasing demand. The overall vacancy rate increased slightly to 9.6%, reflecting neutral market conditions where neither landlords nor tenants hold a distinct advantage in lease negotiations.
Construction activity declined sharply, with only 5.2 million square feet delivered this quarter—a 66% decrease from the same period last year. The construction pipeline also dropped by 46% year-over-year to 22.8 million square feet, aligning closer to historic norms. Leasing activity followed a similar trend, down 6% quarter-over-quarter and 39% year-over-year
Net absorption totaled 3.3 million square feet, driven solely by Warehouse/Distribution properties, while Flex and Manufacturing segments recorded negative absorption. Investment sales totaled $1.1 billion over the past year, with significant transactions including the sale of 500 Freeport and the Midpoint Logistics Center. Meanwhile, rental rates dipped slightly for the quarter but rose 3.2% year-over-year to an average of $9.54 per square foot. The market’s shift toward normalization reflects a recalibration after years of extraordinary growth, signaling a steady foundation for future activity.
DFW Economic Update
Employment in DFW dipped in November after holding steady in October. Job growth was sluggish (1.0% annualized growth, or 11,000 jobs) but broad based across the major sectors for the three months ending in November. The strongest gains were in financial activities and information, while employment slipped in manufacturing and professional and business services. The unemployment rate in DFW was unchanged at 4.0% in November. The Dallas−Fort Worth economy slowed in November. Employment fell slightly, and unemployment held steady at 4%.
MARKET OVERVIEW
Vacancy Rate Increased Slightly to 9.6%
The overall vacancy rate in DFW’s industrial market increased slightly over the past quarter to 9.6%, this was a 10 basis point increase from 9.5% from the Q3 2024. For the different industrial property types, the total vacancy rate for Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 5.8%, 3.2%, and 10.9%, 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 5.2 million sq. ft., this is down 66% from last year when 15.2 million sq. ft. was completed in Q4 of 2023. The under construction pipeline is also down significantly, decreasing by 46% to 22.8 million sq. ft., which puts that aggregate amount underway only slightly above the historic norm for the market.
Leasing Down 6% From Previous Quarter
Leasing activity is down moderately over the past quarter (6%) and more significantly for the year (39%), as the amount of new construction coming to the market has moved back in line with historic norms. Notable recent lease transactions include Frito-Lay signing a lease for 286,414 sq. ft. at Prologis Mountain Creek and NAFTA signing a 109,587 sq. ft. lease at 8401 Ambassador Row.
Demand Healthy but Did not Keep Pace with New Deliveries in the Fourth Quarter
Net absorption—move-ins minus move-outs—recorded 3.3 million sq. ft. for Q4 2024, this down 42% from the 5.7 million sq. ft. recorded in Q3 of 2024. Warehouse/Distribution properties accounted for all of the positive net absorption for the quarter with 3.6 million sq. ft. recorded, while Flex and Manufacturing were both negative at a -80,125 sq. ft. and -243,291 sq. ft., respectively. Notable recent move-ins include CJ Logistics taking 1,075,260 sq. ft. at the SouthPort Logistics Park, Exel taking 581,000 sq. ft. at 2340 Providence, KTX Logistics taking 153,893 sq. ft. at the Cedar Hill Logistics Park and Paragon Furniture taking 121,740 sq. ft. at Mid Cities Logistics Park.
Investment Sales Trends
CoStar Capital Market Analytics reports that over the past 12-month sales volume for DFW market totaled $1.1 billion. This represents 872 properties that sold with an average of $122 per sq. ft. and an average cap rate of 6.6%. Notable recent sales transactions include the Alliance Industrial Company purchasing 500 Freeport, a 1,101,500 sq. ft. distribution facility 100% lease by The Container Store, Sterling Investors acquired the Midpoint Logistics Center with 1,600,445 sq. ft. from a JV between Panattoni and Metlife. Also, Weber & Company sold the 740,870 sq. ft. distribution facility at 2540 W Main St in Midlothian to Home Zone Furniture, which will occupy the property.
Rental Rates Dip for the Quarter, Still up 3.2% Year over Year
The average monthly rental rate for the DFW industrial market was $9.54 per sq. ft., up 3.2% year-over-year from $9.24 per sq. ft. The average monthly rate for Flex space stood at $13.77 per sq. ft., while the rates for Manufacturing space and Warehouse/Distribution space were $7.64 per sq. ft. and $8.67 per sq. ft., respectively. The Northwest Dallas Outlying and DFW Airport submarkets currently have the highest overall average rates at $17.46 per sq. ft. and $11.64 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.
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