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Industrial Space Race Set To Continue Into 2022 As DFW Tenants 'Gobble Up' Stock

Surging demand for industrial space in DFW has analysts forecasting a continued stock deficit heading into 2022.

“We are at an unprecedented place as far as under-construction [projects] and deliveries,” Executive Vice President of JLL Industrial Services Division Randy Touchstone told Bisnow on the heels of a new national and regional market outlook report. “We are seeing tenants just gobbling up space at an unprecedented amount.”

DFW tenants are taking up industrial space faster than it can be built in a trend expected to carry into 2022.

An influx of new residents to DFW, the growing popularity of e-commerce and the restructuring of supply chains are all contributing to the pinch for industrial space, per JLL. That means deliveries are neck and neck with demand, Touchstone said, leaving tenants with few places to turn for new space.

“At the end of the last cycle, in about ’07-’08, our total deliveries were about 18M SF, and we are almost twice that right now,” he said. 

More than 33M SF have been absorbed in DFW over the last 12 months, the majority of which occurred since the start of 2021, JLL noted, citing Q3 results. DFW trails behind only eastern and central Pennsylvania for the highest annual net absorption nationwide, it said.

Developers are responding to the need for more space with a flurry of construction activity, which hit a record high in the third quarter. Industrial projects totaled 35.1M SF, representing the 23rd consecutive quarter of more than 20M SF under construction in the Metroplex. DFW ranked third in Q3 for the most SF under construction in the U.S. 

Some of the biggest industrial projects to break ground in Q3 include 3M SF of warehouses for Walmart in South Dallas as well as Majestic Realty beginning its 1M SF warehouse project at Interstates 20 and 45, Touchstone said.

Despite new inventory, JLL reported vacancies decreased for the fourth consecutive quarter to 6.4%. The dearth of available space and increased construction costs are driving up average asking rents, which landed at $5.54 per SF in Q3, an increase of 6.3% year-over-year, according to a Q3 report from Cushman & Wakefield. 

Third-quarter leases for new and relet space totaled 13M SF, up 11% year-over-year, according to JLL. So far this year, 42.5M SF of industrial space in DFW have been leased. 

Topping the list for the largest lease in Q3 was 864K SF of speculative distribution space in south Fort Worth for third-party logistics provider Saddle Creek Logistics. Speculative space is a hot commodity, with 315M SF of such development under construction nationwide. 

Saddle Creek Logistics Regional Vice President Bobby Hays said in a September statement the company chose the region because of its rapid growth and “thriving business hub with a diverse labor force.”

“We’re seeing incredible demand for centrally located distribution facilities that are equipped to accommodate our growing order volume,” Hays said.

Not only are tenants searching for space, they're looking for large spaces. The increased need for large-scale warehouses is tied to supply chain disruptions that have crippled logistics operations, a Nov. 24 article by JLL staff said. Demand for these spaces is expected to be significantly higher over the next three years, according to the company's latest Future of Global Logistics Real Estate Survey.

“Logistics operators don’t want a repeat of the chaos they found themselves at the beginning of the pandemic,” Peter Fay, head of industrial and logistics valuations in Australia for JLL, said in the article. 

The rush toward larger footprints is yet another factor that will play into the upward trend in rental rates, David Hudson, president of development for Houston-based Griffin Partners, said during an Oct. 19 Bisnow event.

“Builds are going to get bigger, [so] rents are going to get bigger,” he said.

Touchstone said he doesn't foresee DFW’s high level of industrial activity slowing down anytime soon. In Q3 alone, there were more than 110 tenants in the market for at least 40.3M SF of distribution and manufacturing space, per JLL.

“DFW in the last five years has gone from a Top 5 market to a Top 3 market in terms of demand and desirability,” Touchstone said. “The benefits of all the good things we have going for us in North Texas [are causing] the market to hit on all cylinders.