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Industrial Development Erupts Overnight in Plano, McKinney

This map shows some of the larger industrial projects and footprints located throughout the Plano-Frisco-McKinney area. The various industrial submarkets of this region are beginning to see strong growth after years of minimal new development.

While most of the Dallas/Fort Worth (DFW) area has seen a boom in industrial construction over the past decade, the Plano and McKinney submarkets have been relatively quiet until recently.

Due to significant growth in residential development in the northeastern side of the metroplex, e-commerce and last-mile distribution users are increasingly demanding space in these areas. Consequently, these submarkets are no longer considered just a home for technology-based tenants. Several new projects, either under construction or proposed, are focusing on mid-size to large users.

Dave Peterson, NAI Robert Lynn

Total combined vacancy rates in these areas for flex and warehouse product are now below 5 percent. The average rental rate for flex product is around $12.25 per square foot and the average rate for warehouse space is $6.36 per square foot. Although the vacancy rate is as low as it has been in the past five years, there is a tremendous amount of activity and several market transactions that are likely to positively impact demand for speculative industrial space.

While no transactions completed at this time, there have been several prospects working on proposals in the 60,000- to 100,000-square-foot size range in Plano and another prospect looking to lease between 200,000 to 600,000 square feet in McKinney.

Based on these trends and transactions, landlords and tenants should expect rental rates for both flex and warehouse product in Plano and McKinney to steadily continue to rise for the next two to three years.

Submarket Basics

Plano’s primary industrial submarket lies just east and north of North Central Expressway (U.S. Route 75) and President George Bush Turnpike (State Highway 190).

Less than 2 million square feet of industrial space has been delivered in Plano since 2010. But one new project is slated to start construction with two buildings, and a proposed third building scheduled for an end user.

Core5 Business Center of Plano is scheduled to break ground before year’s end and deliver the first new speculative development in Plano in almost 20 years. The three-building park will total 259,882 square feet.

Due to low inventory levels in Plano and being located in the northern Dallas suburbs, this new development will provide much needed relief for mid-to-large-sized tenants.

Just north of Plano is McKinney, a rapidly growing submarket that has seen a significant influx of jobs and people over the past several years. In this market, the connection between job growth and industrial real estate expansion is especially visible.

A great example of the trend in action involves the former Blockbuster building. The property was vacated in 2013, and over the course of the next 18 months, three tenants leased the entire 700,000-square-foot warehouse. The velocity behind the lease-up process demonstrated the demand in McKinney for large blocks of warehouse space.

Project Pipeline

With only 90,000 square feet delivered over the past four quarters, several developers have announced new projectss in McKinney that are either underway or scheduled to break ground by the end of 2018. More than 650,000 square feet of new space will be delivered within the next four quarters and another 300,000 square feet has been proposed.

In addition, plans have been laid out for another 983,880 square feet at McKinney Five Industrial Park, with construction slated to begin in late 2018. The majority of the space is for warehouse users; however, there are also a couple of flex buildings that are planned.

McKinney-Fulfillment-Center-McKinney-Texas

Dallas-based Dalfen America Corp. is developing McKinney Fulfillment Center, a project that will be located across the street from a Walmart Supercenter. The property is being developed on a speculative basis and is slated for a late 2018 completion.

Construction on McKinney Industrial Center is scheduled to begin in the fourth quarter and will deliver two buildings totaling 72,000 square feet. These buildings will be oriented toward flex users and will accommodate tenants requiring 4,000 square feet or more of space.

Two projects currently under construction on the north end of McKinney include 75/Wilmeth at McKinney and McKinney Fulfillment Center. With total footprints of 202,000 square feet and 115,176 square feet, respectively, these buildings will be marketed toward the mid- to large-size tenants for this submarket.

Finally, construction crews will break ground this fall on McKinney National Business Park, located near the McKinney National Airport just off the newly constructed FM 546. The project currently calls for a total of 550,000 square feet with the first two buildings spanning 75,000 square feet each.

Concluding Thoughts

It has been many years since the Plano and McKinney submarkets have seen this type of speculative development. With the current activity level and demand, these projects are well positioned to find tenants in the short term.

While these two submarkets are not developing the big box distribution centers that other submarkets have seen recently, the relative size of these facilities should not be a deterrent to users or a marketing concern for developers. Further, rent growth is likely to remain strong here.

As the DFW market grows and develops, there is ample reason to remain bullish on the Central Expressway Corridor as a desirable submarket that will flourish along with the rest of the metroplex.

— By Dave Peterson, executive vice president, NAI Robert Lynn. This article first appeared in the October 2018 issue of Texas Real Estate Business magazine.

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