Dallas/Fort Worth Drives Forward With Low Vacancy, Growing Population

Some 548,000 jobs have been added to the state of Texas since 2008, and Dallas/Fort Worth ranks third among metro areas in the state for job growth, according to the U.S. Bureau of Labor Statistics. Approximately 1.2 million new residents were added to the Dallas/Fort Worth area from 2000 to 2010. Business Facilities magazine ranks Dallas as the No. 3 center in the U.S. for logistics and distribution, while Fort Worth is ranked No. 5 for aerospace and manufacturing.

We know about Houston’s oil and gas-fueled economy, San Antonio’s growing entertainment and defense sector and Austin’s phenomenal growth backed by tech companies and anchored by state government. But what’s up with North Texas and the Dallas/Fort Worth economic drivers?

For readers in the developer camp, they will be pleased to know that DFW was on track to have a record year of absorption in 2013 by the time we went to press with this article in mid-December. Warehouse properties are in high demand, and DFW is the leading logistics market as it is centrally located between the West Coast, the Southeast, Chicago to the north and the Mexican border to the south.

Labeled a “Gateway Market” with an emphasis on DFW International Airport as the hub, the Dallas/Fort Worth region is consistently a top five market and distribution location of choice for most international, national and regional companies looking to serve consumers and businesses in the southwest region.

The Texas Comptroller’s office reports that job growth, sales tax collections and building permits in the Metroplex all outpace the national economy, with the financial and professional service sector, transportation, hospitality, education and health services (not to mention mining, oil and gas) industries leading the charge.

Dallas/Fort Worth has had 12 consecutive quarters of positive industrial absorption, and the development community will deliver approximately 10 million square feet of new product to meet the annual absorption demand of 15 million square feet, as there is a dwindling supply of available existing warehouse space — and even less Class A logistics space — on the market.

Infrastructure is Key

While all submarkets are experiencing robust leasing activity, there is no question that DFW International Airport remains the central submarket of choice. But besides that, the Fort Worth Alliance Airport to the west has the propensity to deliver intermodal, air and ground operations that are second-to-none. The intermodal rail yard at Alliance has been successful — moving about 700,000 containers a year between trucks and trains, according to Hillwood Properties, which developed the land and area around the city-owned airport.

What’s more, Alliance Airport is building for the future. In 2000, airport managers started planning to extend the runways to 11,000 feet, and over the past decade, they secured federal and state money to help fund the $240 million project. The expanded runway is expected to be completed by 2016 and will have the ability (as DFW International Airport already does) to accommodate fully loaded Boeing 747s headed to other continents.

Meanwhile, back in Dallas, the UP Intermodal (360-acre Dallas Intermodal Terminal, or DIT) in the burgeoning Southern Sector is a rising star. Just 12 miles from downtown, the railport is located adjacent to Interstate 45 at Fulghum Road, approximately six miles south of UP’s Miller Intermodal facility and three miles south of Interstate 20.

Trucks can gain access to the railport via a high-tech, biometric secured AGS (automated gate system) entrance. This technology allows a trucker to process a container through the gate in 30 to 90 seconds, as compared to a national average of four minutes.

In other words, regional players continue to reinvest in the infrastructure, and that will allow Dallas to remain a highly competitive logistics hub.

Market Data

By the numbers, the Dallas/Fort Worth industrial market ended the third quarter of 2013 with a vacancy rate of 8.1 percent, a full percentage point below the 9.1 percent vacancy rate from the third quarter of 2012. Through the first three quarters of 2013, net absorption totaled nearly 6.5 million square feet, which is more or less on par with 2012, when net absorption was positive by more than 8.2 million square feet for the full year, according to CoStar Group.

During the third quarter of 2013, nine buildings totaling 529,589 square feet were completed in the Dallas/Fort Worth market area. This compares to five buildings totaling 741,459 square feet that were completed in the second quarter of 2013, 14 buildings totaling 818,745 square feet completed in the first quarter of 2013, and 1,695,282 square feet in 14 buildings completed in the fourth quarter of 2012.

Furthermore, there were 7,285,211 square feet of industrial space under construction at the end of the third quarter of 2013, CoStar reported. One of the largest developments of the year is Building 5 in ProLogis Park 2035, a 653,582-square-foot facility that was delivered in the second quarter of 2013 and was fully occupied shortly afterward. The biggest move-in during the third quarter was by Walmart.com, which occupied 788,142 square feet at Alliance Gateway 11.

Average asking rents are approximately $3.85 per-square-foot for bulk space on an annual basis and north of $5 per foot for shallow bay industrial facilities. Rents have increased approximately 10-15 percent each quarter, on average, since early 2012.

Looking Ahead

Partly driven by the housing industry, the Dallas/Fort Worth industrial market is very likely to continue its expansion in 2014 and beyond. The inventory of unsold homes in Texas has plummeted to less than four months of supply, the lowest level since records began in 1990, with existing-home sales increasing 12 percent year-to-date through September 2013. Plus, growth in home sales has outstripped increases in housing construction, according to the November 2013 “Beige Book” by the Federal Reserve Bank of Dallas.

Residential home building has consistently driven demand for industrial space and accounts for upward of 20 percent of industrial development and leasing activity. As long as housing supply remains constrained, the Dallas/Fort Worth industrial market should remain robust.

— Kevin Santaularia, president and CEO, Bradford Commercial Real Estate Services/CORFAC