The Fort Worth industrial submarket looks great. Its fundamentals are off the chart with total vacancy at only 5.5%, and absorption continues to outpace the addition of new product, but is the market too hot for its own good?
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“We’ve had a tremendous amount of positive absorption and good activity,” JLL Senior Vice President George Curry said. “Overall, the Fort Worth fundamentals seem to be solid.”
In the last five years, there was nearly 18M SF added to the submarket’s inventory. Since 2016, Fort Worth has delivered 10M SF and absorbed nearly 14M SF. Another 3.6M SF is under construction, and Curry said judging by last year's demand, the new space will also be absorbed.
Most of the growth is concentrated in North Fort Worth, where seven new builds in the 200K SF to 320K SF range are in the pipeline. According to Curry, one of the big factors behind the success of this pocket of Fort Worth is its proximity to major transportation arteries. Similar to South Dallas, another hot industrial submarket, North Fort Worth has an advantage in that the BNSF intermodal is within its borders. Additionally, Interstate 35 West runs through the submarket. This, coupled with the population and business growth in the rest of Fort Worth, makes North Fort Worth one of the most promising submarkets within an already booming DFW industrial market.
“Fort Worth kind of wasn’t on people’s radar even five years ago … just in the last, I would say, two years, the story has changed,” Fort Capital Managing Director Sarah LanCarte said. “People are definitely looking at Fort Worth [now].”
According to her, most of the industrial activity in North Fort Worth is centered on last-mile distribution and most of the demand for industrial is for properties/leases below 60K SF and above 150K SF. Demand for 100K SF to 150K SF properties is sagging.
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The heat generated by all this activity has brought a lot of product to the market and a lot of players into the Fort Worth arena, but Curry and LanCarte said there are a couple of risks the submarket may face in the near future.
According to Curry, the sheer amount of space delivering in 2018 is going to be tough to absorb quickly because it is almost all targeted at the same type of tenant. Most of these 200K SF to 300K SF behemoths are going to deliver at around the same time (April through August) to vie for a limited number of tenants looking for that type of property. Curry said lease-up on this product could take until the end of 2019.
"If there were one worrisome point for me, right now, if I were a developer in Fort Worth it would be that there's basically 10 buildings between 200K SF and 320K SF that are coming online in about a nine- or 10-month period," Curry said.
For LanCarte, whose firm deals primarily in industrial acquisitions, the risk she sees is in potentially unsustainable rent growth. She said she has seen a good deal of investors buy buildings well above replacement cost in Fort Worth with the intent to put more upward pressure on rent growth than it is already under. In North Fort Worth, especially within the loop, LanCarte said the acquisition market is uber-competitive and that it is very tough to find worthwhile deals when properties can get up to 15 solid offers from potential buyers. LanCarte said it will be interesting to see what happens as players in Fort Worth continue to push the envelope on rent growth. She suspects it will not play out in the way they project.
To hear more about trends in the DFW industrial market, check out Bisnow’s Dallas-Fort Worth Industrial and Logistics Summit on Feb. 13.
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