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Rising Interest Rates Threaten To Slow Record Industrial Development In Tarrant County

After months of record absorption, industrial development activity in Tarrant County could begin to cool as investors wait out the effects of recent interest rate hikes.

Craig Cavileer, executive vice president of Majestic Realty and managing partner of the Stockyards and Hotel Drover, kicked off Bisnow's Tarrant County State of the Market event with opening remarks about the Stockyards redevelopment project.

While demand for space has never been stronger, panelists at a June 21 Bisnow event said the tightening of monetary policy may begin to influence which players are more active and which pull back. 

“The small side, from what we are seeing, is still very strong,” said Todd Hubbard, managing principal and president of NAI Robert Lynn’s Fort Worth office. “In the institutional investment market, cap rates have been so low that you get that three-quarter increase in the interest rate and everything changes dramatically.”

Inflationary pressure has also played a role in the quality of industrial space users are targeting, LanCarte Commercial Real Estate President Sarah LanCarte said. Desire for Class-B and C space, where landlords have more wiggle room to offset rising costs, should triumph over less flexible Class-A space in the coming months.

“Groups that would never in a million years look at this product type are interested in buying because … they can raise the rents,” she said.

About a third of demand for industrial space in Tarrant County is driven by e-commerce companies, Hillwood Properties Senior Vice President Reid Goetz said. Timely delivery of products to the county’s growing population should ensure that industrial development remains strong even amid economic uncertainty, he said.

Arco Murray's Trevor Heaney, Stream Realty Partners' Seth Koschak, LanCarte Commercial Real Estate's Sarah LanCarte, Hillwood Properties' Reid Goetz and NAI Robert Lynn's Todd Hubbard

“While you may see a pullback in some of the demand, you still have a population that you need to serve,” Goetz said. “And you have to do it within a time frame that your consumer and your customer expects.”

Industrial developers are drawn to Tarrant County for the same reasons they seek out Texas in general — business-friendly policies, world-class logistics and a can-do attitude, Goetz said. But peripheral zones have become increasingly attractive to developers leaving infill markets in search of available land.

“Where else do you have thousands of acres of undeveloped land within 15 minutes of any kind of CBD?” he said. “The opportunity is tremendous, and it has really driven a lot of growth north, south and west.”

The west side of Fort Worth, where Walsh Cos. is building its 7,200-acre, mixed-use Walsh project, has enormous potential for industrial development, Vice President Ryan Dickerson said. The project is located near the intersection of interstates 20 and 30, adjacent to the Union Pacific Railroad, making it an ideal site for an industrial user.

“We are hoping to bring something complementary to the Walsh division that brings a lot of jobs,” he said. 

Despite vacant land, a rush of players into DFW’s industrial market means much of what exists in Tarrant County is already spoken for. To make matters more challenging, Hubbard said he has noticed a groundswell of NIMBYism toward new industrial projects as residents begin to push against the rapid uptick in development.

Gordon Highlander's Greg Gordon, Walsh Cos.' Ryan Dickerson, Republic Property Group's Jim Henry, M2G Ventures' Amy Castellanos and Majestic Realty/Hotel Drover/Stockyards' Craig Cavileer

“Now, all of the sudden, you’re hearing about truck traffic and the impact on communities,” he said. “These are things we didn’t hear before because we didn’t have this type of growth.”

After hitting a peak of activity, demand may begin to taper over the next 60-90 days, Hubbard said. But the market will likely rebound quickly, and any future changes to the interest rate will be responded to via price adjustments, he said.

“The demand is still there, that’s the positive that comes through this,” he said. “The buyers aren’t going to stop buying, they just want to understand what the playing field is now.”