Once upon a time, not so long ago, an industrial developer in Texas could pick an appropriately zoned spot on the map, throw up four walls and a roof, slap a few utilities in place and reasonably expect multiple tenants to quickly reach out and express a willingness to pay healthy rent for that space.
That’s a colorful and simplified view of the pinnacle of the post-COVID Texas industrial market, but it’s not a farcical take. Between roughly early 2021 and mid-2023, phrases like “record-breaking,” “gangbusters” and “never seen anything like it,” were routinely used by brokers and owners alike to describe the state of industrial tenant demand.
Combined with cheap debt and available equity, the ferocious need for warehouse, distribution and manufacturing space sparked absorption of older buildings and fresh capitalizations of new projects across all major markets. Tenants needed space yesterday, and supply chain disruptions — for developers and tenants — were simply a cost of doing business. And business was very, very good.
Business is still good today. But the development landscape has undoubtedly shifted while the capital markets that govern said landscape have invariably cooled. New development, particularly in terms of equity, is significantly harder to finance given how much interest rates have spiked over the past 24 months and how much new supply has come on line.
According to third-quarter data from CBRE, industrial developers in Dallas-Fort Worth (DFW) did the bulk of their damage in 2023, a year that saw inventory grow by some 65 million square feet — by far the biggest annual volume of new deliveries in recent history. By comparison, 2021 and 2022, which were also strong years for supply growth, had roughly 31 million and 36 million square feet of space added, respectively. Unsurprisingly, vacancy shot up during 2023 and into 2024, but absorption is slowly catching up, and today the marketwide vacancy rate is at 9 percent, per CBRE. Not great, but not terrible either.
CBRE’s latest data puts Austin’s industrial vacancy rate at 18.4 percent. Less than a year ago, vacancy was hovering around 14 percent. The peak of the building boom in the state capital occurred in mid-2024 when developers added about 4 million square feet of new space in the second quarter — projects that were presumably capitalized 18 to 24 months prior at low interest rates. Dating back to 2022, Austin has only had one quarter in which net absorption exceeded supply growth, according to CBRE.
Rents for new suburban product and older infill buildings are retreating, and the sweet spot for deal sizes has shifted to some degree in DFW and Austin alike. In Austin, average asking rents are about $14 per square foot, according to CBRE’s third-quarter data, after plateauing late last year and gradually trending downward this year. CBRE’s third-quarter industrial report for DFW did not specify the current average asking rent, but noted that “since January 2025, there have been a total of 33.7 million square feet of new lease transactions totaling 524 deals” in the market. That activity indicates a push from tenants to lock in favorable rental rates as the market continues to work through new supply.
For all these reasons, owners with spaces to fill have less leeway to just sit back and wait. And generally speaking, for their part, tenants have also slowed their frenetic pace of leasing new spaces and begun taking more time to commit to expansions of existing spaces. Manufacturers, e-commerce groups and third-party logistics companies have more options now — assuming their power needs can be met (more on that to come) — and so developers have been emphasizing flexible designs that appeal to a wide base of users.
“We spend a lot of time thinking about what today’s users want and will need in the future,” says Dax Benkendorfer, development and leasing partner at Austin-based Balcones Real Estate. “Construction costs are what they are, and it can be very difficult and expensive to build these buildings, but a lot of these users typically need the same few things.”
“One [requirement] is a parking ratio that allows users to maximize their office and number of employees working in the facility,” he elaborates. “Ensuring you have the correct parking ratio relative to the spaces you’re leasing, having flexible loading options and adequate clear heights and ESFR sprinklers, as well as speculative office space that isn’t too heavy on the finishes — quite a few users can work with that build-out.”
Bill Baumgardner, executive vice president in the Dallas office of Kansas City-based developer VanTrust Real Estate, says that versatile, effective design of industrial buildings starts with an in-depth understanding of the land beneath them.
“It all goes back to the site — if you try to maximize square footage [of the building], it will be to the detriment to the trailer parking space or truck courts,” he says. “The amount of car and trailer parking has to fit the size of the building, and right now, it’s safer to overpark both of those elements.”
Baumgardner concedes that not all users will require vast amounts of parking. But it’s still important not to skimp on that design element, he says, especially for owners with short-term holding plans. This is because institutional buyers look closely at parking as part of their assessment of industrial deals.
“If an institutional investor is going to buy the building for the long term, they want it to have flexibility because they don’t know who the next user will be [after the current lease expires],” he explains.
Both Benkendorfer and Baumgardner highlight speculative office space as another basic design strategy that can attract a broad base of users. Blank-slate office space allows some employees within the tenant’s operation to immediately take occupancy and get to work, which appeals to landlord because it potentially expedites the timeline for rent collection. Customized build-outs of office space are appropriate if a tenant commits to a building very early in the development cycle, at which point the project becomes more of a build-to-suit than a spec play, sources say.
What’s Your Size?
Traditionally characterized by smaller industrial buildings, Austin saw an uptick in development of large-scale facilities following the announcements of Tesla’s Gigafactory on the city’s southeast side and Samsung’s prefabrication, or semiconductor manufacturing facility, to the north in Taylor.
Benkendorfer believes that eventually all those facilities will be absorbed; it’s just a question of when. In the meantime, industrial developers in the state capital are tasked with determining just how saturated with large-scale product the market is.
“Because there are still some very large buildings under construction right now that are pushing the limits of our market’s traditional building size — which is about 180- to 210-feet deep, rear-load, 100,000 to 200,000 square feet — there are two frames of thought,” he explains. “One is to build very big and land a large manufacturing group or an e-commerce company like Amazon — if they come back to the market. Or you can build really small and stay out of the middle ground — product that hasn’t necessarily been overbuilt but has still had a lot of new deliveries over the past five years and is now being absorbed.”
In DFW, sources say that tenants have absorbed the majority of the 1 million-ish-square-foot buildings that were delivered in late 2022 or early 2023 and sat vacant for some time.
Baumgardner says the metroplex now has seven or eight such buildings that are still vacant, a reduction of about 50 percent from the height of the big-box supply glut, in his estimation. That isn’t perfect, obviously, but it’s a marked improvement from previous conditions.
“We feel like over the past 12 months or so, that segment of the market has healed itself and can sort of take care of itself, and we should see other groups now looking at those deals,” Baumgardner says.
As such, VanTrust is now moving forward with a new speculative project in Terrell, located east of Dallas. Phase I of Terrell Logistics Center will be situated on a 75-acre site and will consist of two buildings totaling roughly 709,000 square feet. But it’s Phase II of the development that represents a shift in development patterns: a 1 million-square-foot building on a 100-acre site. To hedge against risk with this product type, VanTrust is already marketing the Phase II facility as a potential build-to-suit opportunity.
VanTrust’s project piggybacks off of Amazon’s commitment to the submarket; the Seattle-based e-commerce giant recently bought about 120 acres in Terrell with plans to develop an approximately 1 million-square-foot distribution and fulfillment center.
Sean Wood, president of the industrial division at Dallas-based developer Leon Capital, agrees that the large-scale segment of the metroplex’s industrial market is now in relatively good shape.
“A couple years ago, people were very concerned about the fact that there were 16 [vacant] 1 million-square-foot boxes around the metroplex, but probably half of them are occupied by now,” he says. “At that time, we had maybe 50 million square feet of vacancy, 40 percent of which was within these 16 buildings. So that pain has mostly gone away.”
Wood says that North Fort Worth and South Dallas were two submarkets that got some relief via absorption of massive e-commerce and distribution facilities. However, while that activity was taking place, developers were also furiously adding to the supply of smaller product, both through ground-up development and value-add deals for older buildings.
In Wood’s opinion, competition among developers for tenants has moderated a bit in recent months, as the overall landscape has changed from the heyday of two to three years ago. But in a period of high[er] land, construction, borrowing and operating costs, owners have little choice but to hold the line as long as they can.
“It’s still a knife fight; everybody is getting back to basics in terms of negotiating for every last nickel,” he says. “At the same time, owners aren’t giving away deals — maybe a little more free rent here and there than previously — but in infill markets, there’s not much leeway on rental rates.”
He adds that while softening of rents was somewhat expected in the big-box space, that isn’t necessarily the case for smaller-scale product, which is more or less Leon Capital’s bread and butter.
“Leading up to COVID, we were delivering 25 million to 30 million square feet per year, and that was ticking up. Then we got to 40 million-plus for a couple years, and it was too much — too much cheap land and too much cheap capital. Developers were swinging for the fences on any deal they could, and supply got out of control.”
“When the capital markets shuttered following the collapse of Silicon Valley Bank, debt dried up — not just because interest rates increased — and leverage dropped from 70 to below 50 percent, doubling everybody’s equity requirements at a time in which equity wasn’t there and ready to go,” he continues. “The chilling effect showed in the drop-off of new starts in summer 2023. We’ve now had 15 months of less supply being added to the market, which is really helpful alongside steady tenant demand. There’s no rush to start new projects, and it feels like we’ve hit the peak of the supply boom.”
Staying Steady
While paces of new development were cruising past those of absorption in DFW and Austin, Houston held relatively steady.
Per CBRE’s data, from mid-2023 — peak season for new deliveries — to the present, Houston’s industrial vacancy rate has been relatively stable, never moving outside a range of 5 to 8 percent. The volume of new deliveries was a bit outsized relative to absorption in the third quarter of 2023 — about 10 million to 3 million — but that discrepancy quickly stabilized and held throughout 2024 and the first half of 2025.
And although a fair amount of new product is hitting the market right now — 9.4 million square feet of space was delivered in the third quarter and another 12.3 million square feet is under construction, per CBRE — Houston’s industrial vacancy rate is just shy of 8 percent. Further, based on deals forecast to close in the fourth quarter, CBRE expects total leasing activity in 2025 to eclipse that of 2024 by “a sizable margin.”
To at least one local developer, these dynamics are not really surprising.
“Historically, Houston has been consistent in terms of rent growth and balanced market absorption versus deliverables; it’s not considered a volatile market, with the rare exception of the post-COVID era,” says Reed Vestal, CEO of Junction Commercial Real Estate. “Especially for buildings of 1 million square feet or larger, the fundamentals have been relatively disciplined versus other markets, and today there are fewer than three of those [buildings] that are available in the market.
“The bigger issue that we’ve run into is the lack of available sites that can accommodate buildings of this size and magnitude,” he continues. “These buildings are now having to go further away from the CBD in order to be appropriately laid out to accommodate users and tenants’ requirements. Labor then becomes a focal point.”
Junction broke ground this summer on Eastex 59, a 740,404-square-foot project located just east of George Bush Intercontinental Airport in North Houston. Developed in partnership with Dallas-based Provident Industrial, the project was designed to meet the demands of providers of logistics services that need immediate access to the airport, as well as companies needing space in proximity to the port. The versatility of the design is embodied in the four smaller buildings, though Vestal says that two large buildings could have worked given the configuration of the site.
“There’s been an uptick in demand for 100,000- to 300,000-square-foot product in the northeast Houston submarket,” he says. “Developers haven’t been able to fully satisfy that demand over the past 12 to 24 months, so this was an opportunity for us to deliver a park with scale and versatility to accommodate smaller to mid-sized companies.”
Power Is Power
All sources interviewed for this story agree that the electricity needs of many of today’s industrial users represent one of the most visible and dramatic shifts in requirements. Designing and building the infrastructure for that need can be tricky though, says Wood of Leon Capital, especially with spec projects.
“The basic strategy is to have as economical of a box as possible and appeal to the broadest set of users and be able to get what those tenants want — structural capacity to support solar panels, EV charging stations, rooftop units for full HVAC and heavy power,” he says. “But you don’t want to build that on spec, incur major costs, then miss out on a deal that needs less power.”
Vestal agrees that developers today must spend more time assessing potential capacity and costs associated with power in the predevelopment process.
“We take the approach of understanding what we can do from a power perspective before we close on these sites to ensure our ability to satisfy groups with larger capacity requirements,” he says. “We used to be able to get away with a 1,600-amp service for a 150,000-square-foot building. Recently, however, we’ve seen those power requirements increase significantly, with users in that size range now needing 2,500 amps or more and in many instances multiple megawatts of transformer capacity. Relative to the square footage, this increased demand can drive up cost and drive down the number of prospective development sites.”
Bill Burton, executive vice president of marketing and development at Hillwood, sees this power-based trend in action on a regular basis. As the owner of the sprawling 27,000-acre AllianceTexas master-planned development, Hillwood works extensively to deliver infrastructure that can meet the heavy needs of a wide range of users, as well as to supply the surrounding area.
“We’re spending a lot of time with electric providers, trying to help them plan for all of the regional growth that’s taking place and will also supply our needs. We have several new substations that are either under construction already or soon will be on property that is within the Alliance development,” Burton explains.
“The power requirements today are just so much larger,” he continues. “For example, when Facebook first came to this market and did their fifth global data center project, they developed five data centers on the site, and each was about 33 megawatts. Today, it’s not uncommon for a manufacturing group — not necessarily a data center — to come into the market needing between 40 to 60 megawatts, or at least asking for it.”
While the fact that manufacturers need a lot of power isn’t exactly groundbreaking news, especially in the age of automated production and assembly, Burton says that e-commerce distribution users are increasingly needing more power too.
“There’s a lot more activity taking place in those buildings, and that is driving the increased demand for power,” he says. “It’s a different dynamic; the units of measurement have changed for what defines a heavy user.”
Although end users are ultimately responsible for striking a deal with power companies to meet their needs, the ability of landlords to meet high capacities of electricity demand can be an advantage in winning deals. With Hillwood having recently broken ground on three new spec projects at AllianceTexas — the 1.2 million-square-foot Alliance Westport 24, the 798,494-square-foot Alliance Westport 15 and the 310,036-square-foot Alliance Gateway 34 — the electrical infrastructure work surrounding the new buildings could play a role in how quickly they lease up.
— This article originally appeared in the October 2025 issue of Texas Real Estate Business magazine.