Small is the New Big in Industrial
Now that 2013 is behind us (hopefully along with Miley Cyrus), industrial’s big wave of deals should continue to flow into DFW. CBRE first VP Steve Berger tells us what’s in store.
Many new users are coming to the market, like L’oreal and Trader Joe’s. Others like Walmart, Continental Tire, and Ace Hardware are expanding, says Steve (snapped "skydiving" at iFly in Frisco). As a result, we have new projects like Trammell Crow’s Penn Distribution Center and Exeter’s Arlington Commerce Center. Steve says the usual suspects are still at play from job growth to in-migration. But instead of the mammoth deals we saw in 2013 like Quaker Distribution, LG, and Amazon (in which new construction was for large bulk users of at least 300k to 400k SF), this year will see buildings from 20k to 100k SF. (It's called small ball, and the Oakland A's have built a franchise on it.)
Spec projects will lead the way and will likely cluster around areas with a large existing tenant base. Construction will start at the first of this year with many taking less than 12 months to deliver. (Humans have come a long way from taking 20 years to build one pyramid.) And even when the new product is delivered, Steve believes rentals rates will stay at or above current levels. Tenants will pay for the quality, state-of-the-art location, and image, he says. There is room in the market for tenants to pay a higher rate for new product, and don’t be surprised to see modest rent growth in the foreseeable future.
A CBRE report shows that Dallas had the largest industrial availability rate decline across the US—a 130-bp drop to 10.5% in Q4 from 11.8% in Q3. Plus the vacancy rate in Q3 was 7.3% (a figure Steve thinks better explains the market versus the availability stat). Net absorption continues to outpace deliveries, resulting in a healthy market, he says; demand in Dallas was mainly from consumer goods and e-commerce. GDP growth has also benefitted industrial, growing in the mid to upper 3% range throughout the year and at a pace twice as fast as the nation, he says.