Building Boom Forces Dallas Industrial Developers to Mix it Up
As industrial development ramps up across the country in an effort to keep pace with demand, developers are eyeing Dallas-Fort Worth (DFW) for new projects, forcing existing players to get more creative with their site selections and design elements.
The DFW metroplex has experienced millions of square feet of industrial development over the past year. The market currently has more than 27.9 million square feet of space under construction. If DFW continues to expand at this pace, year-over-year industrial growth will outpace that of 2017.
As infill sites become more scarce, developers revisit land that was once looked over for previous projects. Some of these sites include closed landfills, shuttered golf courses and tracts that may have had unusual hurdles such as drainage, utility or environmental issues.
Of all the submarkets that comprise the metroplex, South Dallas enjoys the largest share of development. Over 7 million square feet of product is currently under construction in this submarket, which may puzzle those familiar with the area, as it has historically been less attractive to smaller, more regional tenants.
Location is partly to blame for this pattern. South Dallas can be quite a drive for local business owners. In addition, it’s difficult to attract labor to this area since most workers must commute from elsewhere due to lack of rooftops in this area.
However, lower lease rates, driven by high vacancy stemming from the large number of projects under construction, are attractive to large national companies. Furthermore, South Dallas offers a number of build-to-suit sites that allow tenants and owner/users to build to their exact specifications. Proximity to major modes of transportation, including the Union Pacific Intermodal Terminal, has also helped South Dallas become a key submarket for national distributors.
In terms of new construction, the Great Southwest submarket, which encompasses Grand Prairie, Arlington and South Irving, continues to be a hub for industrial activity. Currently, there is more than 2.6 million square feet of industrial space under construction in this submarket. More than 38 percent of this product is preleased. But much like the South Dallas submarket, the surge in construction has driven the Great Southwest’s vacancy rate higher.
Developers Get Creative
One building in South Dallas that embodies some of the new practices and methodologies in industrial development is Hines’ new project on Cleveland Road. A speculative development coming in at a little more than 1 million square feet, this building will feature 40-foot clear heights and a cross-dock configuration — an unprecedented combination in this area.
The increased clear heights will allow at least one extra pallet position for occupants, as opposed to the 32-and 36-foot clear heights typically seen in new distribution spaces. This reflects a new way of thinking about clear heights: When considering potential facilities, distributors often consider cubic square footage to be the best indicator of storage capability, as opposed to just the size of the floor plate.
In South Fort Worth, a Hunt Southwest project will add some rare speculative supply in the coming months. The 300,000-square-foot building, developed as a cold storage facility, will feature 45-foot clear heights and insulated metal paneling.
It is not often that developers will speculatively develop a freezer/cooler facility, especially one that features such high clear heights. For the most part, the bulk of new speculative developments are true distribution, rather than more specialized uses.
Outside Entrants Arrive
Other developers have flocked to the metroplex over the past 18 months. Atlanta-based Core5 Industrial Partners recently completed a 754,897-square-foot speculative project on Wintergreen Road in South Dallas. The developer also has a two-building development in progress in Valwood and another in Plano. The Valwood project will span 617,820 square feet; the two-building Plano development will comprise 164,842 square feet.
Johnson Development, based in Spartanburg, S.C., just developed a 294,795-square-foot building at DFW International Airport, which recently traded to investment firm KKR prior to completion for roughly $77 per square foot. This transaction depicts the desire and expectations both users and investors are placing on the DFW industrial market. That said, many investors are paying higher prices per square foot in order to place capital and get their foot in the door in DFW.
As the number of projects under construction continues to rise, demand for new space will force developers to look further away from the urban core for available land. Areas such as Denton and McKinney, further north of the metroplex than developers have looked before, will be the next submarkets to experience an industrial boom.
McKinney already enjoys the early signs of this uptick; Hunt Southwest, Sentinel and Core5 are ready to move dirt on sizeable projects in the area.
— By Corbin Blount, director, Lee & Associates DFW. Lee & Associates transaction coordinator Tori Wilson also contributed to this article, which first appeared in the August 2018 issue of Texas Real Estate Business magazine.