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The Dallas/Fort Worth industrial market has performed very well during the past three years. Healthy market fundamentals have created an environment in DFW that is highly conducive for robust growth, though the sluggish national economic recovery will cause some volatility in the pace of that growth. Strong job gains, an expanding position as a global distribution hub and local market confidence are all characteristics driving industrial market performance.
The warehouse/distribution sector drove demand in the DFW industrial market during the first quarter of 2013, with flex space also in demand. Net absorption of industrial space across the Metroplex totaled 1.3 million square feet during the first quarter of 2013, with warehouse/distribution product accounting for 62 percent of the space taken. This compares to 2012 when net absorption of warehouse/distribution space totaled 8.8 million square feet, making up for move-outs in the manufacturing sector. Total net absorption for all product types was 8.3 million square feet during 2012.
Industrial inventory is expanding in DFW with approximately 3.7 million square feet of industrial space under construction or renovation as of March 2013. This compares to 2.1 million square feet under construction or renovation one year ago. Developers are responding to a lack of new supply, as demand remains strong. However, continued national economic uncertainty may keep new development in check. On balance, we expect groundbreakings to accelerate this year.
One recent indicator of confidence has been the uptick in speculative construction. Projects under construction or renovation as of March 2013 were 17 percent pre-leased, compared to 62 percent one year ago and 97 percent two years ago. An increase in the volume of construction is expected as the economy grows, but the confidence conveyed as more projects secure financing without tenants in place is reassuring. We expect the DFW industrial market to continue to benefit from less stringent underwriting over the next year. Given that the development pipeline represents just 0.5 percent of the standing inventory, enough demand exists to justify near-term speculative projects.
Warehouse/distribution projects account for nearly all of the development pipeline. Notable projects include the DFW Trade Center project with 1 million square feet under construction by Trammell Crow in the West DFW Airport/Grapevine submarket. In the Denton/Lewisville submarket, the 530,000-square-foot Valley Parkway Distribution Center and the 756,000-square-foot Lakeside Commerce Center have broken ground.
DFW’s emergence as a global distribution hub provides further support for the increasingly speculative pipeline of new development. In 2012, DFW was ranked in the top 20 metros for global trade with an export volume of approximately $22.5 billion, according to Global Trade. Mexico, Canada and China are the major trade partners of the DFW Metroplex and Singapore Airlines Cargo established the first direct freighter service to South America in August 2012. This type of non-stop cargo service greatly expands the distribution network and fuels business’ desire to operate in proximity to DFW.
Relatively strong regional economic conditions suggest continued growth for DFW’s industrial market. Business confidence in DFW’s sturdy economy remains strong, as firms and employees move to the region. With vacancy low, at approximately 9 percent, and the pipeline modest, we expect groundbreakings to accelerate this year and rents to rise. The Metroplex industrial market remains well-positioned for long-term growth as one of the nation’s major warehouse and distribution centers.
Industrial submarkets in the Metroplex that are likely to experience the most steady demand, reflected in declining vacancy and rising rents in the period ahead, include DFW Airport, Great Southwest, North Stemmons/Valwood, Redbird Airport and Southwest Dallas.
— Chris Dubberly, senior associate for Delta Associates, research affiliate of Transwestern