Spec Construction Driving Positive Absorption in DFW Industrial
The first quarter of 2020 picked up where 2019 left off in the DFW industrial market, with significant positive absorption, asking rents increasing to meet demand and construction activity that led the nation.
DALLAS—The first quarter of 2020 picked up where 2019 left off in the Dallas-Fort Worth industrial market, with significant positive absorption, asking rents increasing to meet demand and construction activity that led the nation for the third time in the previous five quarters, according to a report by JLL. The recent spike in activity in the North Fort Worth submarket during the past year totaled 10.5 million square feet, approximately 43% of the entire market.
“DFW saw a great first quarter. The amount of activity and development, particularly spec construction, is in line with what we’ve seen over the last few years,” Craig Jones, JLL Dallas industrial lead/managing director, tells GlobeSt.com. “If you rewind 60-plus days ago, looking at the quarter trend and annualize it, we could be looking at six consecutive years of 20 million square feet of absorption.”
In the first half of the current cycle, South Dallas had been the focus for speculative big-box construction. Developers waited for the recently delivered supply to lease, with vacancy rates that had peaked at 20% in third quarter 2009 and most recently were as high as 17.3% in third quarter 2018.
Market vacancy has slowly increased since 2018, but as South Dallas leasing activity has begun to fill big-box properties, submarket rates have dropped below 12% for the first time since 2016, says the JLL report.
Specifically, Zume moved into a 1 million-square-foot speculative building last quarter while Home Depot and HD Supply took build-to-suit properties totaling nearly 2.4 million square feet, adding more than 3% to the existing inventory.
Recently, competition at all phases of the real estate life cycle has been felt by tenants, landlords and developers. Since 2010, labor in the industrial sector has increased by nearly 30%. Average asking rents pushed higher from year-end by nearly 5%, while land not already assembled by developers continues to push development further from the interior submarkets. Looking forward, JLL will be tracking market activity for any changes in light of the COVID-19 pandemic.