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Dallas

DFW industrial demand finding floor amid spec development frenzy 

Vacancy rate hit 11.2 percent in second quarter; rents down

DFW Industrial Demand Leveling off Amid Development Frenzy
(Getty)

The pandemic era’s seemingly bottomless pit of demand for industrial space in the DFW market appears to have found a floor, with overall vacancy rates rising and speculative development heading down.

Data from Savills pegged the overall vacancy rate at 11.2 percent in the second quarter, up from 7.6 percent a year earlier, Bisnow reported. 

Fourteen million square feet of industrial space came on market during the three-month period, while another 21 million square feet was under construction.

Speculative projects accounted for 90 percent of the pipeline of recently completed developments and projects in the works — about 17 percent of that segment is pre-leased.

“Activity is picking up among large users, which is a welcome sign for the market,” said Mark Russo, Savills’ vice president of industrial research. “However, the current vacancy rate of 11.2 percent is significant and is at its highest level since 2011.”

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The rise in interest rates over the past year is adding to strains in the market. Landlords facing higher overhead as loans get refinanced are having to cut rents at the same time. 

Average rents dropped 3 percent in the second quarter compared to the prior period, according to Savills.

There have been bright spots with big users lately — Google leased about 1 million square feet in North Fort Worth, and RJW Logistics took 640,000 square feet in Mesquite. 

Supply nevertheless looks poised to outrun demand, according to Russo, who estimated it would take a drop in the vacancy rate to 7 percent for two years, with no construction starts, to rebalance the market at current rates of growth.

Aside from balancing the market, Dallas industrial property owners have to worry about inflated taxes. Just as the market was shifting, Dallas County landlords received appraisal estimates that were between 53 and 70 percent higher than last year.

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