2 Former DFW Office Sites Being Razed Or Redeveloped For Industrial Projects
Warehouses will be built on two DFW properties that housed office buildings for years, once again signaling diminishing demand for the asset type that previously ruled the market.
Lovett Industrial and Rosewood Property Co. have acquired a former call center in Addison they plan to convert into a 141K SF warehouse, the companies said in a news release. Another 101K SF warehouse will be added to the property to create the Addison Innovation Center.
The news comes just one day after Foundry Commercial announced plans to demolish a 287K SF office building at 4000 Horizon Way in Irving to make way for 337K SF of Class-A industrial warehouses.
“We continue to see robust tenant demand for rear-load assets in the submarket; however, there are very limited opportunities to develop new buildings,” Foundry Commercial Managing Director of Development and Investments Jim Traynor said in a statement. “This led us to think creatively about redeveloping existing office buildings that have fallen out of favor.”
The industrial sector isn’t nearly as competitive as it was at the height of the pandemic, but demand in DFW remains strong. With construction starts at a standstill, developers in need of space are beginning to consider redevelopment and demolitions.
Meanwhile, the Dallas-area office market has registered 6.3M SF of negative absorption since 2020, data from Avison Young shows. Shifting work dynamics and plummeting valuations have put the once-superior asset type out of favor.
Prior to the pandemic, the DFW office market saw positive absorption nearly every quarter, save for a few brief periods during the Global Financial Crisis and the telecom bust of the early 2000s, according to Avison Young.
Razing defunct office buildings is becoming more palatable as data reveals just how few of them are suitable for conversions. The demolition industry is valued at $8.7B, up 1.4% since 2018, but some industry experts expect it to grow even more as more companies cut their losses on office.
Office demolitions are already on the rise in the area around Chicago, mostly to make way for warehouses, Alpine Demolition Services Vice President of Operations Karsten Pawlik said in a previous interview.
“I always tell people, Chicagoland is just going to become one big warehouse,” Pawlik told Bisnow.
Some forward-thinking metro areas are even offering to pay developers to tear down office buildings. Calgary, Alberta, launched an incentive program for office demolitions earlier this year.
“There are some buildings that are not feasible to convert,” said Sheryl McMullen, manager of investment and marketing for Downtown Strategy, a business unit within the city of Calgary. “A better use would be to demolish and build something new.”
Taking defunct office properties off the property tax rolls and replacing them with revenue-generating industrial facilities works in certain scenarios, but Traynor told Bisnow it probably isn't a scalable solution to the ever-growing office problem — at least for now.
“In the top industrial submarkets, it makes a lot of sense to demolish low coverage, older office buildings where office vacancy rates have significantly increased,” he said via email.
“However, it is very challenging to identify office buildings that are fully vacant and zoned properly for industrial, so I do not believe we will see a significant amount of conversions from office to industrial in the short term.”
