Lines of Distinction Blur Between Dallas, Fort Worth Industrial Markets
Much of the national hype surrounding the growth in industrial development, investment and leasing activity in North Texas is centered on Dallas, a national leader in in-migration and employment growth across a variety of industries.
The demographic and economic fundamentals of Dallas have made it a highly desirable market for
e-commerce and third-party logistics users looking to service an ever-growing last-mile population. But beginning about four years ago, the dwindling supply of quality sites near the Dallas core began to generate rapid rent growth, causing priced-out developers and users to start looking westward.
Fort Worth’s transition from a predominantly manufacturing market to a dynamic logistics and distribution hub began with Hillwood’s purchase of 15,000 acres for its AllianceTexas development in the mid 1980s. Since that time, Fort Worth has displayed a more aggressive stance on economic and industrial development.
Both cities have long shared access to critical pieces of infrastructure — DFW International Airport, Interstates 20, 30 and 35 — as well as strong availability of land and a quality supply of laborers. But until recently, the growth paths always favored Dallas — the more gentrified of the two cities that was also a preferred destination for corporate relocations and consolidations and a leading market for residential development.
But now, as the economy is officially in its longest expansion in history and the industrial market of the metroplex as a whole finds itself saturated with demand from all manner of users, Fort Worth has all but caught up.
We see industrial developers and investors treating the two cities as legitimate equals, while the tenant base spans all major industries — e-commerce, third-party logistics, manufacturing, consumer goods, pharmaceuticals and construction materials. Name the industry and you’ll find demand for space from those users in both cities.
By The Numbers
The numbers bear out the notion that Dallas and Fort Worth are on equal footing now more so than ever before.
According to CBRE’s research, the industrial market in the greater Dallas area, comprised of six submarkets totaling some 522 million square feet, currently has a vacancy rate of 6.1 percent. The Fort Worth side of the market, which includes Arlington and spans about 274 million square feet, has a direct vacancy rate of 4.7 percent.
Year-to-date absorption as a percentage of total inventory in Dallas has been about 2.1 percent, while that figure stands at roughly 1.7 percent for Fort Worth. Though the total inventory of Dallas is nearly double that of Fort Worth, the latter has slightly more product under construction — about 14 million square feet in Fort Worth versus 13 million square feet in Dallas.
While small, that difference nonetheless speaks to the fact that Fort Worth has more runway for industrial development. Developers in Dallas and Fort Worth are increasingly being forced to target sites further from the core in cities like Forney, Denton and Midlothian.
The capital markets side of the business has also taken note of Fort Worth’s rapid catch-up to big brother Dallas, and there no longer appears to be a discount in pricing from investors on what they are willing to pay for assets in Fort Worth. Particularly with regard to newly constructed, stabilized Class A product, we see minimal discrepancies in pricing.
In addition, landlords and developers in both markets are fielding the strongest demand for smaller, front-park, rear-load buildings than ever seen previously. And with the rent growth experienced in the market across the board, opportunities to build on previously orphaned or challenged sites are now making sense.
Additionally, while the pace of this rent growth in Dallas has been healthy enough for some time to support rehabilitation projects on older assets, that was not the case in Fort Worth — until a few years ago.
The Area In Between
As the playing field between the two cities has leveled, demand for industrial space has remained equally strong in submarkets located in between the metroplex’s two endpoints.
The submarkets located north and south of DFW International Airport both have vacancy rates under 6 percent and are facing the same types of land constraints. And while the airport — the primary landowner in these areas — has shown a willingness to execute ground leases at many of its sites, most of this product is already occupied for long terms.
Arlington and Grand Prairie have traditionally been strong-performing submarkets. But both cities are beginning to see more gentrification, particularly Arlington as a growing town for students and an entertainment hub for Dallas sports.
As these demographic and economic evolutions continue to take root in the areas between Dallas and Fort Worth, we expect to see some older industrial properties redeveloped and retrofitted for new uses.
— By Steve Trese, senior vice president, CBRE; Steve Koldyke, senior vice president, CBRE; and Bob Scully, senior vice president, CBRE. This article first appeared in the December issue of Texas Real Estate Business magazine.