REBusinessOnline

Quality of Labor, Land Availability Buoy Fort Worth Industrial Market

Carter-Cold-Storage-Fort-Worth

DFW Coldspot, Hunt Southwest’s 300,000-square-foot cold storage facility within Carter Industrial Park, aims to capitalize on growing demand for this sub-type of industrial real estate. Much of Fort Worth’s existing cold storage product is outdated.

The DFW industrial market has enjoyed unprecedented growth over this seven-year development cycle.  The market has added approximately 118 million square feet of industrial inventory over that period and absorbed 143 million square feet.

Population growth in the Dallas-Fort Worth (DFW) metroplex, the state of Texas and the south-central U.S. region, as well as growth in e-commerce, are the primary tailwinds propelling this extraordinary growth.

Ever since Hillwood broke ground on AllianceTexas in the late 1980s, putting north Fort Worth on the radar of industrial users, the expansion in the Fort Worth industrial market has been an ever-increasing part of the overall DFW industrial market’s growth.  However, the Fort Worth industrial market’s growth is really accelerating now based on the lack of available developable industrial sites in Dallas and the Mid-Cities.

Further, when users and developers compare Fort Worth and southeast Dallas, the two areas with available industrial spaces and developable industrial land, Fort Worth’s advantages with regard to infrastructure, amenities, and most importantly, labor, stand out. As the area reaches peak employment, and with labor cost being the highest percentage of a user’s overall operational cost, the workforce factor has become the most important site selection criterion for users and developers.

Preston Herold, Hunt Southwest

Got the Munchies?

One industry driving growth in the Fort Worth industrial market is food. Carter Industrial Park, located on Fort Worth’s south side near the intersection of Interstates 35 West and 20, is home to an array of food and beverage users that have contributed to South Fort Worth’s healthy industrial vacancy rate of 3.7 percent.

These tenants include McLane, Tyson’s Foods, MillerCoors Brewing. Mrs. Baird’s Bread, Schwan’s Co., Mother Parker’s Tea & Coffee and Ben E. Keith, the latter being one of the country’s largest distributors of food and beer. Collectively, these users account for a total footprint of about 3 million square feet.

Food facilities can take on many types of uses — production, processing, distribution — with some facilities containing each of the above uses. Cold storage facilities have historically been user-owned as they are cost- and time-intensive to build. Financing for this product type is also challenging to obtain.

For these reasons, the cold storage inventory has remained fairly constant while demand for cold storage space in one of the nation’s fastest-growing markets is ever-increasing.

To capitalize on this market inefficiency and meet demand for newer, more efficient buildings and refrigeration systems, Hunt Southwest is developing DFW ColdSpot, a 300,000-square-foot cold storage facility with 45-foot clear heights. The speculative property will be able to accommodate multiple uses within the cold storage space, including freezer storage, cooler storage and food processing. Shell completion  is slated for the second quarter.

Looking Forward

While most experts predict continued expansion in 2019, most are also predicting a recession to occur imminently thereafter. While the Fort Worth industrial market is arguably healthier now than it has been at any other time in its history, there is no shortage of macroeconomic concerns on which to keep an eye.

The impacts of tariffs and the trade war at a time when material and labor costs are already at historically high levels are making it harder for new projects to pencil. Rising interest rates, labor availability in the context of the current administration’s immigration policies, a volatile stock market, global unrest and an impending presidential election are also injecting more overall risk into the capital markets. This activity should result in higher required returns.

Rents will have to continue to increase to absorb the higher building and capital costs. As a result, we believe the Fort Worth industrial market will continue to see rents rise in 2019, as well as elevated levels of new development and absorption.

Looking beyond 2019, the Fort Worth industrial market is well positioned to endure a short-term recession or market pullback. Supply and demand are not out of balance like they are in southeast Dallas, or like they have been historically in the DFW industrial market.

Further, the Fort Worth industrial market with a large percentage of its tenant base being in the food and defense industries tends to be more recession resistant. We see great value in Fort Worth over the long term with downside protection in the near term.

By Preston Herold, vice president, Hunt Southwest. This article first appeared in the February 2019 issue of Texas Real Estate Business magazine. 

Get more news delivered to your inbox. Subscribe to France Media's e-newsletters. Click here.



Related News

Conferences