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The Emergence of South Dallas

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Lexi Zager, CBRE

The South Dallas industrial submarket has emerged and is here to stay. As one of the hottest up-and-coming industrial submarkets, South Dallas has all the components to continue to thrive for the foreseeable future.

For the last five years, South Dallas has been a basin for major industrial development. Located south of downtown, the well-positioned submarket provides several key logistical advantages.

The convergence of several major arteries makes South Dallas an ideal distribution market, and the ability to import, store and export goods, particularly from Mexico, California and the Port of Houston, greatly benefits the area. Supply can easily move along I-20 or I-35 while avoiding some of the worst congestion of the DFW Metroplex.

This infrastructure, coupled with intermodal access, allows for a faster and more efficient transport of goods. Additionally, unlike the other major industrial submarkets, South Dallas contains an abundance of land at favorable pricing.

Since early 2010, South Dallas has dominated the market in terms of new construction. It has been the fastest growing submarket, accounting for over 25 percent of the total delivered construction in the entire Metroplex in the last five years. Historically, South Dallas has been considered a big box market.

The latest construction trends, however, show South Dallas evolving from a predominantly large transaction market to a more all-encompassing one. At this time last year, of all the buildings under construction in South Dallas, the average size was 884,377 square feet. This figure was nearly double the average size in the rest of DFW, which was 449,950 square feet per building. Comparatively, current facilities under construction in South Dallas average 547,010 square feet.

While still catering to larger tenants, over half of the projects underway today are smaller than 500,000 square feet. Developments like these aimed at smaller tenants have not been seen in the area since Stoneridge in the 1980s. This pivotal shift will further strengthen the overall submarket.

This diversification also has historical precedence in a market like Alliance, where industrial demand fueled the need for other asset types as well. As jobs became available, the need for retail and housing also grew. South Dallas is primed to follow a similar path due to extremely strong leasing and absorption activity.

South Dallas has accounted for over 17 percent of the total DFW absorption since the first quarter of 2010. This is an impressive feat considering South Dallas is the second smallest submarket at 51 million square feet. This equates to a 7.1 percent total market share within DFW’s expansive 720 million-square-foot industrial market. Needless to say, South Dallas has more than pulled its own weight during the recovery.

To put this further in perspective, the submarket that posted the most absorption during the same timeframe was Great Southwest/Arlington at 18.9 percent. Great Southwest/Arlington, however, has more than twice as much existing space as South Dallas.

It seems logical that it would be difficult to lease space that does not exist. It appears, however, that South Dallas has managed to do just that. Since the beginning of 2015 alone, there has been over 4.5 million square feet of new, signed leases, of which 3.7 million square feet was signed in either brand new facilities or buildings still under construction.

Fueling this demand are Fortune 500 companies such as Kimberly Clark and Proctor & Gamble. Additionally, other large profile tenants continue to target this submarket, like Ulta’s new build-to-suit and NFI’s 650,000-square-foot lease in Prologis’ Park 2/35.

Naysayers for the area are quick to point out a lack of rooftops and question the availability of a viable workforce. However, within a 30 minute drive of the submarket (which is the average commute in the Metroplex) resides a workforce of an estimated 1.2 million people.

In addition, according to Moody’s Analytics, Dallas is estimated to grow 10.8 percent by the year 2020. Population growth directly increases the need for more industrial space. No other submarket within DFW has the land supply and infrastructure in place to accommodate this growth.

For those that question South Dallas’ future potential growth, look again at an industrial market like Alliance in the 1990s. It begins with the need for land, available infrastructure, and demand.

South Dallas possesses all those in spades. As Dallas continues to grow, so will the need for industrial space in South Dallas.

— By Lexi Zager, research coordinator, CBRE. This article originally appeared in the June 2015 issue of Texas Real Estate Business.

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