DFW industrial fundamentals are strong, but NAI Robert Lynn industrial president and principal Rick Medinis and Majestic Realty Co SVP Al Sorrels are watching the southern Dallas submarket closely for developers building too much and too small.

DFW absorbed just over 25M SF of industrial product in 2016. Of that, 5.5M SF came from South Dallas. Almost 23M SF of product delivered throughout the Metroplex, and vacancy stands at 6%. 

Land in South Dallas has gone from a per acre price to a per SF price. Infrastructure challenges — namely access to water — are being addressed, making the market more attractive to developers. A handful of submarkets are susceptible to overbuilding if deal flow doesn’t pick up or slows down, and southern Dallas is the most vulnerable, Sorrels  said. 

Industrial execs who have been in the business for years, like Sorrels and Medinis, watch for signs of overbuilding, but newer developers who don’t bear the scars of past cycles may not. Sorrels said he’s concerned about the dozen or so developers who have never built in the submarket filling the pipeline. The number of spec industrial buildings going up in the area indicates how hot the market is, but Sorrels wants builders to remain cautious and careful for the remainder of the cycle.

Overbuilding doesn’t concern Medinis (above), but the size of the properties in the pipeline does give him pause. “The one worry I have is the developers in South Dallas who are building less than 250k SF buildings,” he said. “I don’t believe the demand is there, and it will be a challenge for them to lease those facilities.”

Other submarkets, namely DFW Airport, where Sorrels and Medinis are both very active, have maturity and natural growth governors on their sides. The DFW Airport is largely built out. Medinis is working on ML Realty’s 166k SF building at 100 South Royal Lane in Coppell, the 112k SF DCT DFW Trade Center in Coppell and EastGroup's 788k SF Building 8 at Northfield Distribution Center in Grapevine. A couple of vacancies in Majestic Airport Center DFW near the airport keep Sorrels busy.

When Medinis looks to the future, he thinks of north Fort Worth. The submarket that has historically been synonymous with Hillwood now has a few other developers in play. Medinis said creativity will be necessary to service the demand of South Dallas, north Fort Worth, DFW Airport and all other hot submarkets.

Hear more from Sorrels and Medinis at Bisnow’s 6th Annual Dallas Industrial Forum. Get tickets here.