DFW INDUSTRIAL MARKET 1Q 2019
• Q1 2019 marks the 34th consecutive quarter of positive absorption for the Dallas-Fort Worth industrial market.
• Industrial occupiers took down over 3.5 million square feet in the first three months of the year.
• The industrial construction pipeline picked up over the quarter and was observed to be 16.1 million square feet at the end of Q1 2019, with a pre-committed rate of 50.0%
• Construction starts during Q1 2019 totaled 6.4 million square feet and were 36% pre-committed.
• Product coming online totaled 5.4 million square feet and was 67% pre-committed.
• The market vacancy rate increased slightly over the quarter and was observed to be 6.1% at the end of Q1 2019.
The Dallas-Fort Worth area remains a leader in the industrial market and shows growing strength in the ecommerce and logistics market.
According to a study from Cushman & Wakefield, the Dallas-Fort Worth area currently has 30.1 million square feet of industrial space under construction, which marks the first time that DFW has surpassed 30 million square feet of product under construction. Development activity is focused on Alliance (7.4 million square feet), Dallas Fort Worth International Airport (5.6 million square feet), and Great Southwest (4.8 million square feet), according to the report.
Other data from the study:
• Net absorption for the first quarter of 2019 stands at 5.2 million square feet (Note: Cushman & Wakefield defines absorption as when the tenant takes occupancy.)
• Major tenant move-ins during the first quarter include:
Stanley Black & Decker 1,279,500 square feet, Alliance; Ashley Furniture 877,230 square feet, Mesquite; Thirty-One Gifts 651,518 square feet, DFW Airport; and Lollicup 650,000 square feet, East Dallas
• During Q1 2019, nearly 5.1 million square feet of industrial space was delivered.
• The overall vacancy rate stands at 7.0%, well below the historical 15-year average of 9.2%
• Notable leases signed this quarter include Hollingsworth Logistics, 494,990 square feet, Great Southwest; BSN Sports, 324,480 square feet, Great Southwest; and Technology Container Corp (renewal), 200,450 square feet, South Dallas.
“The DFW industrial market continued to exhibit healthy growth over the first quarter of 2019 with more than 5.2 million square feet of positive absorption,” said Kurt Griffin, executive managing director at Cushman & Wakefield.
“This strong demand exceeded new construction deliveries of 5 million square feet and overall vacancy declined slightly to 7%. Although there is in excess of 30 million square feet currently under construction, over half (15 million square feet) of the total is preleased, leaving 15 million square feet of available speculative product,” Griffin said.
According to a report from CBRE, ecommerce and logistics companies claimed a larger share of the 100 largest industrial-and-logistics leases signed in 2018 than they did a year earlier, underscoring the growing influence of those companies on U.S. warehouse construction. And the Dallas-Fort Worth area was part of that trend.
CBRE’s analysis of last year’s industrial-leasing activity in the U.S. found that 61 of the largest 100 leases were signed by ecommerce companies and logistics firms for a total of 61.5 million square feet. In the previous year, those two sectors claimed 52 of the largest leases for a cumulative 43.2 million square feet.
The Dallas-Fort Worth market had 10 of the largest warehouse leases for a total of 11.1 million square feet in 2018, trailing only the Inland Empire in Southern California and the PA I-78/81 Corridor in Eastern Pennsylvania, according to CBRE.
Six of the 10 leases in DFW were for ecommerce and logistics companies, putting the area on par with the national trend. These figures were slightly down from 2017, when 13 warehouse leases were signed in the DFW area, but the total square footage leased – 11 million square feet ion 2017 – was roughly equivalent. Six of those 2017 leases were for ecommerce and logistics companies.
“In 2018, DFW’s industrial real estate market saw unprecedented demand for a multitude of reasons,” said Ryan Keiser, executive vice president with CBRE’s Industrial & Logistics practice in Dallas. “The growth of ecommerce – specifically the ever-increasing ecommerce service levels such as two-day, same-day and white glove delivery options – was a huge factor. We also are seeing demand for distribution centers due to the Metroplex’s location and transportation infrastructure, and we see strong local demand due to the area’s population growth.”
Keiser expects comparable demand for industrial and logistics real estate in 2019.
“DFW’s real estate and labor markets continue to represent an ‘easy button’ for corporate users needing to expand their supply chains due to DFW’s availability of cost effective industrial real estate and quality labor,” said Keiser.
The ecommerce and logistics industries are related in that many logistics companies, specifically third-party logistics providers, handle ecommerce distribution for their clients, according to CBRE.
“These figures illustrate that there still is a lot of momentum behind ecommerce uses in U.S. warehouse leasing, despite concerns that the sector’s expansion may be reaching its later stages,” said David Egan, CBRE’s global head of Industrial & Logistics Research. “We expect this type of leasing momentum to continue in 2019.”
Regardless of industry, the largest industrial leases got even larger last year. The largest 100 from last year – spanning uses such as ecommerce, logistics, manufacturing, food and beverage, technology and retailing – totaled 19% more space than the largest of 2017.
Last year’s largest industrial leases were spread across 32 markets, with many clustering in leading logistics hubs including California’s Inland Empire (20 leases), Pennsylvania’s I-78/I-81 corridor (11), Dallas-Fort Worth (10), Atlanta (nine) and Chicago (five). Others claiming several large leases were Columbus (four), Detroit (four) and St. Louis (three).
“These are among the leading markets that offer the high-quality logistics facilities that many of these ecommerce users are seeking,” said Chris Zubel, CBRE Americas Industrial & Logistics Investor Leader. “This activity builds upon itself when a region provides the transportation access, qualified labor pool and state-of-the-art real estate that many e-commerce users need.”
These new industrial warehouses are hardly just large concrete foundations with outer shells. There’s plenty of technology going into these new warehouses. And means they need workers with more diverse skills than those of the past.
In December, Smart Warehousing, a warehousing and fulfillment services company, announced it was opening its first North Texas location at AllianceTexas. The 269,494-square-foot facility, which is located at Alliance Center North 15, will feature the company’s proprietary, web-based inventory management system that was created specifically for the warehousing and supply-chain management industry.
“There is no better location for logistics companies in North Texas than the Alliance Corridor,” said Ed Lee, Smart Warehousing’s chief operating officer. “Hillwood had space immediately available at AllianceTexas to accommodate our current needs, and additional land and resources are accessible to us if we decide to expand in the future. Since our concept relies heavily on customer service and technology, we also found Hillwood’s community partnerships, workforce development relationships, and job placement assistance through the Alliance Opportunity Center to be great benefits.”
The company was established in 2001 and has expanded to more than 30 locations across 12 cities.
Using its Smart Warehousing Information Management System (SWIMS), customers receive customizable supply chain solutions. Through the use of customer alerts and mobile apps, customers can monitor account activity, deliveries, purchase orders, future requirements, and replenishment activity so they may precisely control inventory and more accurately predict future product demand.
“Smart Warehousing is a great fit for AllianceTexas because it shares Hillwood’s commitment towards the creation of exceptional customer value, driven by innovation and scale,” said Reid Goetz, vice president with Hillwood.
“Smart Warehousing is at the leading edge of logistics and fulfillment companies that are embracing advanced technology to enhance business productivity, and it will be able to further leverage the real estate platform and operational support infrastructure already in place within AllianceTexas,” Goetz said.