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What Next For Industrial, DFW's Hottest Property Type, In 2019?

E-commerce drove industrial absorption and development to new heights in 2018, especially in markets that were already major distribution hubs, like Dallas-Fort Worth. Will the momentum continue next year?

Surging demand has some developers struggling to keep up new warehouse supply in Atlanta.

Yes, but perhaps not quite as frenetically.

"We expect the DFW industrial leasing market to continue to hum along at levels above historical averages, but not quite as robust as the past three years," NAI Robert Lynn President Mark Miller said.

"We have a slight oversupply of speculative buildings in South Dallas, which needs a little time to absorb that excess capacity," Miller said. 

The operative word is slight, with industrial vacancy still relatively low marketwide.

What lies in store for the industrial market will guide the discussion at Bisnow's DFW's Industrial & Logistics Outlook on Feb. 13.

The most recent DFW industrial market report by Marcus & Millichap pointed out that even with the addition of more than 100M SF of industrial in the Metroplex since 2013, the sector's vacancy rate has remained on a downward trend, falling below 6% by the second half of 2018. 

With demand strong and vacancies fairly low, industrial development will probably remain in high gear in DFW in 2019.

According to PwC and ULI's 2019 Emerging Trends in Real Estate — the same report that put DFW as the No. 1 market overall to watch nationwide — robust local industrial development is part of a wider surge in industrial growth concentrated in certain markets. 

One-third of the country’s new industrial construction is in Dallas-Fort Worth, California’s Inland Empire, Atlanta and Pennsylvania. Within these markets, most projects are outside of the urban core, in outlying submarkets where large plots of land are more plentiful.

One example of that is South Dallas, which has been a hotbed for construction during this real estate cycle, particularly in the big-box distribution segment.

NAI Robert Lynn President Mark Miller

The demand will probably be there to absorb whatever additional capacity is developed in Dallas-Fort Worth in 2019. A variety of companies are fueling absorption in the DFW market, Marcus & Millichap's report notes. Certainly e-commerce giants like Amazon and Wayfair are active, but they aren't the entire picture. 

Consumer goods manufacturers such as Kohler and GE Appliances and third-party logistics firms like UPS and FedEx have also taken down swaths of DFW industrial product in recent years.

For companies looking for space in Dallas-Fort Worth, a slight excess in industrial supply isn't a bad thing.

"There are multiple developments under construction or just about to break ground near and on DFW International Airport and throughout the Fort Worth business parks, which will ensure a steady supply of new, modern space to satisfy ongoing demand in these popular submarkets," Miller said.

Rock-solid economic fundamentals in Dallas-Fort Worth will also support the industrial market in the coming year.

The metro has one of the nation’s strongest economies and rapid population growth, so DFW will continue to see the sort of business expansion that drives demand for industrial space, Marcus & Millichap reports.

Local payrolls grew by an annualized 3.1% (9,500 jobs) in October following gains of about 2% (6,100) in September, the Federal Reserve Bank of Dallas reports. DFW's year-to-date employment growth (as of October) is 2.6%, which is similar to last year's 2.5% pace, the central bank reports.

In the investment market, the Dallas-Fort Worth industrial properties will continue to be in high demand among institutional funds and REITs, whose still-growing appetites are dedicated to accumulating industrial assets, Miller said.

"We expect that part of the business to remain at a similar strong pace next year," Miller said.

Find out more about the industrial market at Bisnow's DFW's Industrial & Logistics Outlook on Feb. 13.