Research & Forecast Report DALLAS-FORT WORTH | INDUSTRIAL Q2 2018 Market Indicators Relative to prior period Annual Change Quarterly Change Quarterly Forecast* Vacancy Net Absorption Under Construction *Projected Warehouse / Distribution Industrial Summary Statistics DFW Industrial Market Big-Box Non Big-Box Combined Flex MFG Vacancy Rate 10.1% 4.4% 6.5% 6.5% 2.8% Quarterly Change 0.1% 0.1% 0.1% 0.2% -0.2% Absorption YTD (Thousands Square Feet) 1,613 360 1,972 -38 356 New Supply YTD (Thousands Square Feet) 1,967 610 2,577 179 161 Under Construction (Thousands Square Feet) 13,700 7,656 21,356 1,214 1,448 Asking Rents Per Square Foot Per Year Average Quoted (NNN) $ 3.84 $ 5.20 $ 4.47 $ 9.84 $ 4.36 Quarterly Change 1.3% 2.1% 1.8% 2.5% -3.7% Year-Over-Year Change 0.5% 6.3% 0.7% 0.9% 1.8% Demand bounces back after slow start to 2018 MIKE OTILLIO Director of Research KARI BEETS Business Development and Content Strategist After a slow first quarter, the Dallas-Fort Worth industrial market proved that Q1 2018 was just a blip, and activity and demand is still strong. Halfway through the year, the market posted 7.9 million square feet of absorption, and while this is 17% behind half-year 2017, fewer deliveries in the first two quarters could account for the slowdown, as much of DFW activity is driven by construction that is occupied upon delivery. As is typical of the DFW market, Big-Box product accounted for almost 90% of net absorption in Q2. Great Southwest was the standout this quarter, with 2.6 million of the 4.5 million square foot Big-Box absorption total. This established submarket is in high-demand because it is central to the metroplex and the labor pool. Large move-ins to the submarket included Haier occupying 832,000 square feet in Wildlife Commerce Park and FedEx occupying 365,000 square feet at Liberty Park GSW. South Dallas, which has had 2.3 million square feet of deliveries this year has absorbed less than half this total; however, activity should pick up in in the next two quarters as several large leases have been signed and five build-to-suits are underway and set to deliver later this year. Smaller product, Non Big-Box warehouse, posted an unusually weak quarter in Q2, with nine of fourteen submarkets posting negative absorption for a market total of negative 75,000 square feet. The North I-35E Corridor had the largest amount of negative net absorption with 333,000. While smaller tenants may feel economic slowdowns faster than Big-Box occupiers, market-wide negative absorption may just be a blip of several large move-outs all hitting in the same quarter. Outlook With 28 million square feet in the pipeline expected to deliver in 2018, of which 9.5 million square feet is build-to-suit, activity in the DFW market is still healthy. Absorption activity will pick up in Q3, but vacancy improvement will be tempered by numerous tenants who are eschewing spec buildings for built-to-suits. Because consumer spending is still strong, industrial demand has largely ignored macroeconomic geopolitical concerns. Retailers are still optimistic in adding ecommerce facilities; however, many have expanded in other markets such as Atlanta and the Lehigh Valley rather than in DFW. Colliers Research segments industrial product into three categories: Warehouse/Distribution (which is comprised of Big-Box and Non Big- Box Industrial), Manufacturing, and Flex. The All Industrial summary is comprised of Warehouse/Distribution, Manufacturing, and Flex.
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Demand bounces back after slow start to 2018MIKE OTILLIO Director of ResearchKARI BEETS Business Development and Content StrategistAfter a slow first quarter, the Dallas-Fort Worth industrial market proved that Q1 2018 was just a blip, and activity and demand is still strong. Halfway through the year, the market posted 7.9 million square feet of absorption, and while this is 17% behind half-year 2017, fewer deliveries in the first two quarters could account for the slowdown, as much of DFW activity is driven by construction that is occupied upon delivery.
As is typical of the DFW market, Big-Box product accounted for almost 90% of net absorption in Q2. Great Southwest was the standout this quarter, with 2.6 million of the 4.5 million square foot Big-Box absorption total. This established submarket is in high-demand because it is central to the metroplex and the labor pool. Large move-ins to the submarket included Haier occupying 832,000 square feet in Wildlife Commerce Park and FedEx occupying 365,000 square feet at Liberty Park GSW.
South Dallas, which has had 2.3 million square feet of deliveries this year has absorbed less than half this total; however, activity should pick up in in the next two quarters as several large leases have been signed and five build-to-suits are underway and set to deliver later this year.
Smaller product, Non Big-Box warehouse, posted an unusually weak quarter in Q2, with nine of fourteen submarkets posting negative absorption for a market total of negative 75,000 square feet. The North I-35E Corridor had the largest amount of negative net absorption with 333,000. While smaller tenants may feel economic slowdowns faster than Big-Box occupiers, market-wide negative absorption may just be a blip of several large move-outs all hitting in the same quarter.
OutlookWith 28 million square feet in the pipeline expected to deliver in 2018, of which 9.5 million square feet is build-to-suit, activity in the DFW market is still healthy. Absorption activity will pick up in Q3, but vacancy improvement will be tempered by numerous tenants who are eschewing spec buildings for built-to-suits.
Because consumer spending is still strong, industrial demand has largely ignored macroeconomic geopolitical concerns. Retailers are still optimistic in adding ecommerce facilities; however, many have expanded in other markets such as Atlanta and the Lehigh Valley rather than in DFW.
Colliers Research segments industrial product into three categories: Warehouse/Distribution (which is comprised of Big-Box and Non Big- Box Industrial), Manufacturing, and Flex. The All Industrial summary is comprised of Warehouse/Distribution, Manufacturing, and Flex.
2 Dallas-Fort Worth Research & Forecast Report | Q2 2018 | Industrial | Colliers International
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NEW SUPPLY ABSORPTION VACANCY
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WAREHOUSE / DISTRIBUTION (BIG-BOX)
WAREHOUSE / DISTRIBUTION (NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX)
> Non Big-Box Warehouse product posted negative 329,000 square feet of net absorption in Q2, as negative 500,000 square feet of sublet move-outs counteracted 173,000 square feet in direct net absorption. Nine of fourteen markets posted negative net absorption totals this quarter. The half-year total of 332,000 square feet is 23% of last year’s half-year mark.
> The vacancy rate for Non Big-Box product increased 0.2% to 4.6% in Q2, but remains significantly lower than the average vacancy rate over the last 5 years (5.2%). Northeast Dallas has a significant amount of sublease vacancy at 2% of the submarket. The West I-30 Corridor’s vacancy remains the highest Non Big-Box vacancy rate at 9.2%.
> Asking rental Rates for Non Big-Box product continue to increase, rising 1.5% from the prior quarter to $5.29 NNN. Rates have increased 7.1% from Q2 2017 when rates averaged $4.94 NNN.
> Vacancy for warehouse/distribution product was relatively flat quarter-to-quarter, decreasing by only 300,000 square feet to 6.2%. Year-over-year vacancy is down 0.4% and is expected to continue downward for the next several quarters. South Dallas, the submarket with the highest vacancy rate, increased 0.9% to 15.7%, and the North I-35E Corridor remains the tightest warehouse market in the metro at 2.7%.
> Net absorption for Q2 2018 was 4.2 million square feet, up significantly from Q1’s slow absorption total. For the first half of the year, net absorption is almost 2 million square feet shy of the total through Q2 2017. Deliveries continued to be slow in Q2, with only 16 properties totaling 4 million square feet delivered.
> Great Southwest had the highest absorption total by far at 2.5 million square feet – over four times the amount of the second-highest market South Dallas that had 558,000 square feet of warehouse net absorption.
> Big-Box deliveries picked up in Q2, after an unusually slow Q1. Seven properties totaling 3.5 million square feet were delivered, almost double last quarter’s total. Pre-leasing activity is still healthy, as delivered properties were 60% leased as of the end of the quarter.
> Vacancy declined 0.6% from the previous quarter and is down 1% from the prior year. Sublet space on the market continues to be high, at 1.5 million square feet. Expect vacancy to continue its downward trend for the rest of the year, as e-commerce demand is strong and deliveries this year are expected to total 15 million square feet, almost 6 million square feet less than 2017.
> Average asking rates for Big-Box product were flat quarter-to-quarter and year-over-year at $3.83, showing the overall market is achieving balance between supply and demand.
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse/distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
Market Trends & Stats
WAREHOUSE / DISTRIBUTION (NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX)
4 Dallas-Fort Worth Research & Forecast Report | Q2 2018 | Industrial | Colliers International
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ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
> Flex product has seen relatively stable occupancy for the last two years. In Q2 2018 vacancy decreased a 0.2% to 6.2%, with 6.5 million square feet vacant. The West I-30 Corridor was once again fully occupied, and the North US 75 Corridor had the highest vacancy rate for flex product at 8.9%
> Demand was strong in Q2 2018, with net absorption of 787,000 square feet. Two markets – the Far North I-35E Corridor and North US 75 Corridor posted above a quarter million square feet in net absorption. With year-to-date net absorption of almost 800,000 square feet, half-year totals far surpass the cumulative two quarters of any year going back to 2002.
> Nine flex properties were under construction at the end of Q2, totaling 710,000 square feet. The majority of construction – 470,000 square feet – is in the Far North I-35E Corridor. Flex properties under construction average 80,000 square feet and were 77% pre-leased at the end of the quarter.
> After a slow start to the year, Q2 2018 showed more of what we’ve come to expect from the DFW market. Overall net absorption was a steady 5 million square feet, and deliveries totaled 4.6 million square feet. Vacancy improved slightly to 5.8%, despite a small uptick in the sublet vacancy rate, which is now at 0.5%.
> Direct net absorption totaled 5.7 million square feet, while sublet net absorption, which has been negative 13 of the past 16 quarters, subtracted 600,000 square feet from that total. Because of the slow Q1, the half-year total is behind that of the past few years, but expect absorption to pick up in Q3 and Q4, although it will not be a near-record year like 2017.
> At the end of the quarter, 97 properties totaling 27 million square feet were under construction, and properties were approximately 40% pre-leased. The average size of properties under construction was 277,000 square feet.
> Manufacturing vacancy held steady from the prior quarter at 2.8%. Year-over-year vacancy is down 0.6%. Northeast Dallas saw a significant rise in vacancy due to a 250,000 square foot move-out in 2901 W Kingsley Dr, causing vacancy to increase 3.5% to 9.2% overall.
> Net absorption for Q2 2018 totaled 110,000 square feet. South Dallas had the highest amount of absorption at 105,000, and the North US 75 Corridor posted 95,000 square feet of net absorption.
> Two manufacturing facilities totaling 110,000 square feet delivered in Q2 2018 – a 20,000 square foot property in Denton and a 90,000 square foot facility for Parker Products in West Tarrant County. At the end of the quarter five properties totaling 1.6 million square feet were under construction.
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse/distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
MANUFACTURING
ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
FLEX
6 Dallas-Fort Worth Research & Forecast Report | Q2 2018 | Industrial | Colliers International
Q2 2018 Notable Industrial Lease Transactions
TENANT PROPERTY SUBMARKET SF LEASED PROPERTY TYPE DEAL TYPE SIGN DATE
PPG Industries, Inc 1001 Lakeside Pky Far North I-35E Corridor 449,200 Big-Box New 6/1/2018
Rent The Runway 1111 W Bardin Rd Great Southwest 319,200 Non Big-Box New 4/1/2018
Hollander 2615 Gifford St Great Southwest 311,215 Big-Box New 6/1/2018
Toyota Motor Sales USA LLC 1825 Midway Rd Far North I-35E Corridor 121,188 Non Big-Box New 5/1/2018
Barrett Distribution 3800 Leon Rd Northeast Dallas 115,041 Big-Box New 4/1/2018
Mars Petcare 2200 Danieldale Rd South Dallas 106,000 Big-Box New 5/1/2018
Whitmore Manufacturing 300 Apache Trl Outlying Market 101,160 Non Big-Box New 4/1/2018
Arcadia, Inc 7601 Ambassador Row North I-35E Corridor 86,731 Non Big-Box New 5/1/2018
Style Access 1613 Hutton Dr Far North I-35E Corridor 81,560 Big-Box New 6/1/2018
Blue Ribbon Delivery 2101-2115 Exchange Dr Great Southwest 55,376 Non Big-Box New 4/1/2018
Bathcrest 3125 N Great Southwest Pky
Great Southwest 54,353 Big-Box New 4/1/2018
Network Logistics 750 Royal Ln DFW Airport 42,600 Non Big-Box New 4/1/2018
Ultraflex Systems 850 S Jupiter Rd Northeast Dallas 40,000 Non Big-Box Renewal 6/1/2018
Lease Comps Leasing activity for all product types totaled 7.3 million square feet and approximately 500 deals were signed. Big-Box leasing comprised 40% of the total square footage leased, while Non Big-Box made up 44% and flex comprised 12%.
Q2 2018 Notable Industrial Sale Transactions
PROPERTY ADDRESS SUBMARKET CLUSTER SALE DATE SALE PRICE SIZE (SF) PSF PROPERTY TYPE BUYER
10310-10455 Markison Rd, 10410-10540 Miller Rd, 10445,10465 Vista Park Rd
4200-4240 Spring Valley Rd Metropolitan/Addison Apr-18 $4,600,000 61,139 $75 Flex Greg St. Clair
1707 Briercroft Ct Far North I-35E Apr-18 $3,750,000 35,000 $107 Non Big-Box Concord Capital Partners
3445 S Burleson Blvd Outlying Market May-18 $2,145,000 21,810 $98 Non Big-Box Holt Cat Equipment
11177 Ables Ln North I-35E Corridor May-18 $762,000 11,260 $68 Non Big-Box Magic Moments Parties and Events
Sales Comps Investment activity in Q2 2018 totaled $617 million, which was down 27% from the previous quarter and 21% from Q2 2017. The rolling four-quarter total was 9.2% lower than in Q2 2017, at $2.8 billion. Industrial investment sales has been hindered by a lack of available product for sale.
MIKE OTILLIO KARI BEETSDirector of Research Business Development and Content StrategistDIRECT +1 214 217 1232 DIRECT +1 214 217 [email protected][email protected]
Industrial catches its breath after active 2017MIKE OTILLIO Director of Market ResearchKARI BEETS Senior Research AssociateNew development has been the driving force behind the Dallas-Fort Worth industrial market the past few years and Q1 2018 is no exception. However, it is the lack of deliveries that affected the market this quarter -- only 3 million properties were delivered compared to eight in Q4 2017. Deliveries of large build-to-suits and spec properties that are quickly occupied have driven absorption the last few quarters, and the lack of deliveries contributed to lackluster absorption of 2.3 million square feet. Despite fewer deliveries, developers are still optimistic about the market as evidenced by the 24 million square feet under construction of which 60% is spec.
While e-commerce and Big-Box product remains the dominant force in the market, there has been increasing construction of small spec product, especially in infill markets in response to tenants seeking last-mile facilities close to population centers. The average size for Non Big-Box product under construction has dropped from 125,000 square feet in Q1 2017 to 71,000 this quarter. Rates for Non Big-Box product continued to climb in Q1 -- jumping 2.2% to $5.20 NNN.
Vacancy remained flat for most product types in Q1 2018, showing that supply and demand are nearly balanced. Flex saw the greatest increase in vacancy at just 0.2%, while manufacturing vacancy dropped 0.2%. Vacant existing manufacturing space is the hardest to come by in DFW with a 3% vacancy rate followed by Non Big-Box space with at 4.3%.
OutlookDFW’s population continues to grow, so demand will continue to grow for logistics space -- both for e-commerce distribution and infill sites for last-mile logistics. Expect construction of warehouse product to continue to hover in the 20 million range for the foreseeable future.
Vacancy will rise slightly over the next few quarter especially for Big-Box warehouse space. While demand exists for such space, due to the availability of land, many large tenants have been opting for build-to-suits. Only four Big-Box build-to-suits were under construction last summer, while eight totaling 6.3 million square feet are currently under construction. Expect this trend to continue as more developers are readying sites and waiting for tenants to come along before starting construction.
Colliers Research segments industrial product into three categories: Warehouse/Distribution (which is comprised of Big-Box and Non Big- Box Industrial), Manufacturing, and Flex. The All Industrial summary is comprised of Warehouse/Distribution, Manufacturing, and Flex.
2 Dallas-Fort Worth Research & Forecast Report | Q1 2018 | Industrial | Colliers International
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WAREHOUSE / DISTRIBUTION (BIG-BOX)
WAREHOUSE / DISTRIBUTION (NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX)
> Non Big-Box Warehouse product posted net absorption of 359,000 square feet in Q1. Direct absorption accounted for 519,000 square feet, while negative absorption took 161,000 off the total. Northeast Dallas had the highest amount of new space occupied with 452,000 square feet.
> Vacant Non Big-Box space increased by 250,000 square feet from Q4 2017 to Q1 2018, increasing the total vacancy rate to 4.4%. Of Non Big-Box markets with over 10 million square feet, the North I-35E Corridor had the lowest rate at 2.1%. The West I-30 Corridor has the highest Non Big-Box vacancy rate at 8.1%, which is below the overall vacancy rate for Big-Box product.
> Asking rental Rates for Non Big-Box product increased 2.2% from Q4 2017 to $5.20 NNN. This is a jump of 6.8% from Q1 of the prior year, signaling that there is more demand than supply for Big-Box product.
> Vacancy for warehouse/distribution product was relatively flat quarter-to-quarter, increasing by only 604,000 square feet to 6.5%. South Dallas continues to be the submarket with the highest vacancy rate, which increased 1.3% this quarter to 15.6%. North Fort Worth saw the greatest decrease in vacancy rate, dropping 2% to 3.8%.
> Net absorption for Q1 2018 was 2 million square feet, down significantly from Q4 2017’s record-setting total of 9.4 million SF. Deliveries in the quarter were the lightest since Q4 2013 and net absorption was negatively affected by 1.4 million square feet of sublet space being put on the market.
> Alliance saw the greatest absorption of all warehouse markets with 825,814 square feet, while East Dallas saw the highest amount of negative absorption totaling 353,775 square feet.
> Vacancy for Big-Box product rose 0.1%, with vacant space increasing by 354,115 square feet. An increase in sublease space on the market caused the overall rise in vacancy, as direct vacancy was down 0.6% from the previous quarter, while sublease space increased half a percent.
> Net absorption was significantly slower in Q1 2018 than activity in previous years. Total absorption was 1.6 million square feet. This was significantly affected by negative absorption from Restoration Hardware subleasing 858,000 square feet at 1303 W Pioneer Pky and 310,000 square feet of vacated sublet space in E DFW Airport.
> Average asking rates for Big-Box product in Q1 2018 were $3.84 NNN, with a 1.3% increase quarter-over-quarter. Since rates dipped in the latter half of 2017, rates were only up half a percentage point year-over-year.
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse/distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
Market Trends & Stats
WAREHOUSE / DISTRIBUTION (NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX)
4 Dallas-Fort Worth Research & Forecast Report | Q1 2018 | Industrial | Colliers International
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ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
> Flex product saw a 0.2% increase from Q4 2017 to a rate of 6.5% in Q1 2018. Demand continues to be strong for flex product, but vacancy has crept up slightly in the last year, up 0.5% over Q1 2017. The West I-30 Corridor had the lowest vacancy rate, with all of its 2 million square feet fully occupied. Of the markets larger than 5 million square feet, East Dallas had the lowest vacancy rate ate 2.4%.
> Q1 net absorption was negative for the second consecutive quarter, posting negative 37,631 square feet. Direct space showed slight positive absorption of 22,000 square feet, but more than 60,000 square feet of sublet space was put on the market, causing the overall total to be negative.
> Seven flex properties delivered in Q1, totaling 179,000 square feet (an average of 25,000 square feet per property). Nine properties totaling 1.2 million square feet are still under construction. As of the end of the year properties under construction are 84.4% leased.
> Q1 2018 slowed slightly from the red-hot market of 2017, but there is little cause for concern about the overall health in the market. Vacancy is flat quarter-to-quarter at 6%, and it has held below 6.5% (historically a low rate for the market) since Q3 2015.
> Net absorption for overall industrial was significantly lower this quarter at 2.3 million square feet. The drop can be largely attributed to the lack of deliveries -- only 3 million square feet -- whereas Q4 2018 saw a lot of new product being delivered and immediately absorbed.
> At the end of the quarter, 76 properties totaling 24 million square feet were under construction, and properties were approximately 40% pre-leased.
> Manufacturing vacancy rate decreased 0.2% to 2.8% from Q4 2017 to Q1 2018. Year-over-year vacancy is down one percentage point. Of all manufacturing submarkets with over 2 million square feet, the West I-30 Corridor has the highest vacancy rate at 12.1%.
> Net absorption for Q1 2018 totaled 356,000 square feet. Northeast Dallas had the highest amount of absorption at 378,000, while East Dallas had the lowest amount at negative 90,000.
> Two manufacturing facilities delivered in Q1 2018 totaling 161,000 square feet. As of the end of the quarter five properties totaling 1.5 million square feet were still under construction.
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse/distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
MANUFACTURING
ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
FLEX
6 Dallas-Fort Worth Research & Forecast Report | Q1 2018 | Industrial | Colliers International
TENANT PROPERTY SUBMARKET SF LEASED PROPERTY TYPE DEAL TYPE SIGN DATE
Tell Works (T-moble Subsidiary) 4101 Research Dr. Great Southwest 722,000 Big-Box New Feb-18
Professional Packaging 1400 N State Hwy 360 Great Southwest 350,000 Non Big-Box New Jan-18
Vira Insight 2701 S Valley Pkwy Far North I-35E Corridor 329,060 Big-Box New Feb-18
Fiat Chrysler Automotive 1613 Hutton Dr Far North I-35E Corridor 153,814 Non Big-Box New Feb-18
Re-Teck 902 Avenue T Great Southwest 128,019 Non Big-Box New Jan-18
Custom Assembly 1228 Crowley Cir - Bldg 1 Far North I-35E Corridor 110,700 Non Big-Box New Feb-18
American Air 1275 Metro Cir - Bldg 2 DFW Airport 81,271 Non Big-Box New Feb-18
Collier Metal 3333 Miller Park S East Dallas 80,000 Non Big-Box New Feb-18
Lewisville Ladder 801 Heinz Way Great Southwest 65,448 Non Big-Box Renewal Feb-18
Daryl Flood Logistics 1300 N Hwy 3360 Great Southwest 63,295 Non Big-Box New Jan-18
Adtec 514-516 N GSW Pkwy Great Southwest 60,206 Non Big-Box New Feb-18
Majestic Steel 1325 114th St Great Southwest 56,000 Non Big-Box Renewal Feb-18
LOVES Truck Solutions 1504 W North Carrier Pkwy Great Southwest 55,440 Non Big-Box New Feb-18
Prestige Auto Tech 2001 - 2023 Exchange Dr Great Southwest 49,280 Non Big-Box New Feb-18
American Metals 3325 Roy Orr Blvd Great Southwest 48,980 Big-Box New Feb-18
Lease Comps Leasing activity for all product types totaled 8.4 million square feet and approximately 500 deals were signed. Big-Box leasing comprised 41% of the total, while Non Big-Box made up 42% of leasing activity.
PROPERTY ADDRESS SUBMARKET CLUSTER SALE DATE SALE PRICE SIZE (SF) PSF PROPERTY TYPE BUYER
2603, 2605 & 2609 Technology Dr. North US 75 Corridor Jan-18 $2,994,375 132,245 $23 Non Big-Box Fornida
2020 Singleton * West I-30 Corridor Mar-18 $25,000,000 472,234 $53 Big-Box Mohr Capital
2001 110th St. Great Southwest Feb-18 $5,038,800 74,100 $68 Non Big-Box Dealer Industries
1505 W Walnut Hill Ln DFW Airport Mar-18 $5,100,000 51,295 $99 Flex Jeff Mercer
651 N Plano Rd North US 75 Corridor Mar-18 $5,000,000 96,660 $52 Flex Hartman REIT
Sales Comps Investment activity in Q1 2018 totaled $710 million, which was 1.9% higher than Q4 2017. While investment in office properties in DFW saw a 65% drop from Q4 2017 to Q1 2018 industrial investment has remained strong though the end of 2017 and into 2018.
New Supply YTD(Thousands Square Feet) 22,151 4,445 26,597 535 890
Under Construction(Thousands Square Feet) 16,042 1,671 17,713 802 1,251
Asking Rents Per Square Foot Per Year
Average Quoted (NNN) $3.79 $5.15 $4.41 $9.63 $4.52
Quarterly Change 0.3% 2.5% 0.9% 1.8% -4.2%
Year-Over-Year Change 1.8% 7.0% 1.6% -4.3% 1.1%
2017 Sets New Records for Big BoxMIKE OTILLIO Director of Market ResearchKARI BEETS Research AssociateThe Dallas-Fort Worth industrial market refuses to slow down. 2017 posted the second-highest net absorption total of 23.6 million square feet, just 1.9 million behind 2016’s total. While the vacancy rate has risen due to the large amount of spec deliveries, at 5.9%, it remains significantly below the average for the last 20 years of 8.4%.
As e-commerce continues to drive the industrial market, DFW’s market is shifting toward Big-Box product. Five years ago, Big-Box absorption made up 49% of total absorption, Non Big-Box warehouse 38%, Flex 8% and Manufacturing 5%. In 2017, Big-Box made up 76% of total industrial absorption. 2017 was a record year for Big-Box product. Big-Box posted record absorption this year at 17.9 million square feet, half a million square feet above 2016’s total, which had been the highest recorded. In deliveries, Big-Box completed 22 million square feet, over 5 million higher than 2008, which had the second-highest total.
E-commerce has and will continue to dominate demand in the industrial space. In the fourth quarter, Amazon had three of the ten largest move-ins in 2017, totaling 2.5 million square feet, a quarter of total industrial absorption. Shipping services are also expanding in response to industrial demand — in 2017, UPS added a one million square foot distribution center at 2320 E Bardin Rd and FedEx moved into a 350,000 square foot ground distribution center in Mesquite.
OutlookWith DFW’s continued dominance as the distribution hub for the south-central US, speculative construction will continue, seeking to attract ecommerce tenants. E-commerce has created greater uncertainty around what consumers will demand a year from now, so tenants will demand flexibility in their real estate strategy -- as Amazon has done through its recent 18-month leases. Companies will also seek flexibility through using 3PLs to allow them to optimize their real estate strategy while being able to focus on their core business.
Rates will start to rise for infill markets as consumers within the metroplex seek faster delivery and industrial land becomes scarce. DFW Airport will see rising rates in the warehouse market and the North I-35E Corridor will see rising rates in Flex and Non Big-Box space. Developers will look to invest in these markets and retrofit or redevelop old warehouse space.
Colliers Research segments industrial product into three categories: Warehouse/ Distribution (which is comprised of Big-Box and Non Big- Box Industrial), Manufacturing, and Flex. The All Industrial summary is comprised of Warehouse/Distribution, Manufacturing, and Flex.
2 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
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WAREHOUSE / DISTRIBUTION (BIG-BOX)
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> Although Non Big-Box warehouse / distribution product accounts for 64% of total warehouse product, in Q4 2017. It accounted for only 21% of the quarterly net absorption.
> Vacancy in the Non Big-Box sector reached a new historical low at 4.3% after decreasing 0.3% from the prior quarter, matching its rate from Q4 2016. DFW Airport had the highest vacancy rate for this product at 8.4%, in contrast to its market-low rate for Big-Box product. Alliance was the tightest Non Big-Box market with a 0.6% vacancy rate.
> Rental rates for Non Big-Box product increased 2.6% from Q3 to Q4 to $5.15. Rates increased 7.5% year-over-year, the largest rate increase in this cycle. North Fort Worth had the highest rental rates of any market at $6.20, while the West I-30 Corridor posted the lowest average rates at $4.15.
> Warehouse/Distribution products are divided into Big-Box and Non Big-Box. Big-Box is classified as distribution centers larger than 200,000 square feet with a clear height greater than 28’ clear.
> Total warehouse vacancy decreased 0.4% from 6.8% Q3 to 6.4% in Q4 2017, but was up 0.5% year-over-year. South Dallas’ vacancy decreased 2% from the previous quarter, but was still the highest of any market at 14.5%. North I-35E continued to have the lowest vacancy at 2%, a decrease of 60bp from the previous quarter.
> The warehouse market saw positive absorption of 9 million square feet for the quarter, and 22 million for the year. Annual net absorption was 1.6 million behind 2016’s total, but up 14% from 2015. North US 75 Corridor was the only submarket that had negative absorption for the year (-36,000 square feet). South Dallas has the highest absorption of 4.4 million square feet, which caused its vacancy drop.
> Big-Box product accounted for 80% of total warehouse absorption for the quarter, or 7.1 million square feet of the 9 million total. For all of 2017, Big-Box product absorbed 18 million square feet of the 22 million total.
> 2017 delivered 22 million square feet in 43 properties, the most of any time in our statistical history. The construction pipeline still holds 33 properties totaling 16 million square feet, of which two-thirds are speculative, a drop from 87% speculative for the construction pipeline at the end of Q3.
> Rental rates for Big-Box product were flat from Q3 to Q4 2017 at $3.79 and are up 1.9% year-over year. The Far North I-35E corridor, which includes North Stemmons and Lewisville, had the highest rental rates at $4.51 triple net. The West I-30 Corridor, Alliance, and South Dallas submarket are the least expensive – averaging $3.50 psf.
3 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse / distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
Market Trends & Stats
WAREHOUSE / DISTRIBUTION (NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX)
WAREHOUSE / DISTRIBUTION (BIG-BOX)
4 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
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FLEX
ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
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> Flex product makes up 13.5% of the total DFW industrial market, or 106 million square feet. Data Centers are excluded from flex product in this report.
> Vacancy rose 0.2% for flex product from Q2 2017 to 6.3% in Q3 2017. The vacancy rate is at the same point as at the end of 2016, after dipping into the low 6% range earlier this year. Of the markets with over 3 million square feet, East Dallas had the lowest vacancy rate at 2.4% and the North US 75 corridor had the highest at 10.4%.
> Net absorption for 2017 totaled 492,000 square feet — 40% of 2016’s total of 1.3 million square feet. This is the lowest yearly net absorption total since 2010 saw negative 300,000 square feet for the year.
> Ten properties were delivered in 2017 totaling 535,000 square feet. At the end of the year, 9 properties totaling 800,000 square feet were still under construction, and these properties were 81% leased.
> Overall the industrial market still appears strong, with vacancy dropping from 6.2% in Q3 to 5.9% in Q4. Vacancy is up 0.3% from Q4 2017, but this is slight given the amount of spec construction in the market.
> Net absorption for all industrial product types was 9.4 million square feet for the quarter and 23.7 million for the year. Although 2017’s absorption was 1.9 million behind the prior year, it was still the second highest year on record.
> In 2017, the industrial market delivered 125 properties totaling 28 million square feet. This is the highest square footage delivered for any year on record, surpassing the second-highest year (2008) by 4.8 million square feet. While 80% of the properties started construction as spec, buildings delivered in 2017 were 48% leased at the end of the year.
> Manufacturing space accounts for 101 million square feet in the DFW industrial market, or 12.5% of the total.
> In Q4 2017, net absorption for manufacturing space was 533,000 square feet. Major move-ins included Hayes & Stolz occupying its 144,000 square foot facility in Burleson and Firestone & Robertson Distilling Co moving into 100,000 square feet in Fort Worth -- both build-to-suit projects. Ecolab’s move-out from 102,000 square feet at 1801 Riverbend West offset these gains. For all of 2017, the manufacturing market saw total net absorption of 1.2 million square feet.
> Six manufacturing facilities delivered in 2017, totaling 890,000 square feet. At the end of the year there were four properties totaling 1.3 million square feet still under construction, and all of these properties are build-to-suits.
5 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big-Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non Big-Box includes all other warehouse / distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
MANUFACTURING
ALL INDUSTRIAL: WAREHOUSE / DISTRIBUTION (BIG-BOX & NON BIG-BOX), MANUFACTURING, AND FLEX
FLEX
6 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
TENANT PROPERTY SUBMARKET SF LEASED PROPERTY TYPE DEAL TYPE SIGN DATE
Wayfair 2820 N Interstate 35E South Dallas 874,566 Big-Box New Oct-17
Professional Packaging 1400 N highway 360 Great Southwest 349,421 Big-Box New Dec-17
Quality Logistics Systems 3601 Pinnacle Point Dr. West I-30 Corridor 165,000 Big-Box Renewal Dec-17
HD Supply* 240 Dividend Dr DFW Airport 207,002 Big-Box Renewal Dec-17
Dealer Tire 410 W Trinity Blvd Great Southwest 159,768 Non Big-Box New Dec-17
Image MicroSystems 4500 Cambridge Rd Great Southwest 159,068 Big-Box New Oct-17
Expediters 1101 Valley View Lane Great Southwest 132,400 Non Big-Box New Oct-17
Wizards of the Coast 925 W. North Carrier Pkwy Great Southwest 123,684 Non Big-Box Renewal Oct-17
SkyCam 2751 Northern Cross Blvd Alliance 74,623 Non Big-Box New Nov-17
DiCom 2205 Hutton Dr West I-30 Corridor 62,121 Non Big-Box New Nov-17
Estes 1415 S Loop 12 North I-35 E Corridor 46,660 Non Big-Box New Dec-17
Niagra Conservation 1200 Lakeside Pky Far North I-35E Corridor 41,202 Non Big-Box Renewal Oct-17
RPM Expedite 601 Westport Pky DFW Airport 36,619 Non Big-Box New Nov-17
Ferris Structure Inc. 4320 Marsh Ridge Rd Far North I-35E Corridor 13,439 Flex Sublease Nov-17
Sign Assign LLC 702 Shepherd Dr Northeast Dallas 7,980 Flex New Dec-18
Lease Comps Year-to-date leasing activity totaled 43.5 million square feet, down 27% from the prior year. Big-Box leasing made up 42% of the total, Non Big-Box Warehouse 40%, Flex 11%, and Manufacturing 7.5%.
PROPERTY ADDRESS SUBMARKET CLUSTER SALE DATE SALE PRICE SIZE (SF) PSF PROPERTY TYPE BUYER
2101 Reeves Pl South Fort Worth Dec-17 $25,000,000 301,500 $83 Big-Box Pure Industrial REIT
2101 Terminal Rd North Fort Worth Nov-17 $2,400,000 41,832 $57 Non Big-Box GT Industrial Properties
3151 Hailfax St North I-35E Corridor Oct-17 $2,200,000 47,089 $47 Non Big-Box Southern Leasing Company
1301 Apollo Rd North US 75 Corridor Oct-17 $3,400,000 82,960 $41 Non Big-Box Baker Triangle
825-831 E Highway 121 Far North I-35E Sep-17 $1,270,000 20,200 $63 Non Big-Box Mercer Company
1950 W Bardin Rd South Dallas Aug-17 $25,000,000 430,829 $58 Big-Box Flex-N-Gate
913 N Belt Line Rd North I-35E Corridor Jul-17 $1,100,000 26,040 $42 Non Big-Box ASDierolf Concrete
500 Randall St Outlying Market Jul-17 $4,651,491 87,870 $53 Manufacturing Goff Capital Partners
5005 Samuell Blvd East Dallas Jun-17 $50,621,072 351,874 $144 Big-Box Monmouth RE Investment Corp.
Sales Comps Investment activity for 2017 stood at $1.5 billion, 9.6% behind the total for 2016. Quarterly volume was $294 million, significantly behind the first three quarters of 2017. Sales averaged $56 per square foot and cap rates were in the low 7s.
*Colliers Transaction
7 Dallas-Fort Worth Research & Forecast Report | Q4 2017 | Industrial | Colliers International
PROPERTY ADDRESS SUBMARKET CLUSTER SALE DATE SALE PRICE SIZE (SF) PSF PROPERTY TYPE BUYER
2101 Reeves Pl South Fort Worth Dec-17 $25,000,000 301,500 $83 Big-Box Pure Industrial REIT
2101 Terminal Rd North Fort Worth Nov-17 $2,400,000 41,832 $57 Non Big-Box GT Industrial Properties
3151 Hailfax St North I-35E Corridor Oct-17 $2,200,000 47,089 $47 Non Big-Box Southern Leasing Company
1301 Apollo Rd North US 75 Corridor Oct-17 $3,400,000 82,960 $41 Non Big-Box Baker Triangle
825-831 E Highway 121 Far North I-35E Sep-17 $1,270,000 20,200 $63 Non Big-Box Mercer Company
1950 W Bardin Rd South Dallas Aug-17 $25,000,000 430,829 $58 Big-Box Flex-N-Gate
913 N Belt Line Rd North I-35E Corridor Jul-17 $1,100,000 26,040 $42 Non Big-Box ASDierolf Concrete
New Supply YTD(Thousands Square Feet) 14,419 4,449 18,867 434 579
Under Construction(Thousands Square Feet) 17,433 1,799 19,233 842 1,405
Asking Rents Per Square Foot Per Year
Average Quoted $3.78 $5.01 $4.34 $9.50 $4.71
Quarterly Change -1.6% 1.6% -1.6% 0.5% -2.1%
Year-Over-Year Change 2.9% 3.8% 0.7% -1.9% 6.2%
Big-Box seeking large tenants propels DFW industrial marketMIKE OTILLIO Director of Market ResearchKARI BEETS Research AssociateA strong economy continues to propel Dallas-Fort Worth’s industrial market, and consumers’ demand for faster delivery has caused businesses to seek efficiencies throughout their supply chain. Amazon signed the two largest deals this quarter at 920,000 and 604,000 square feet. Net absorption was a healthy 4.4 million square feet, slightly slower than Q2, but stronger than Q1 2017. Diverse companies led to the absorption total; for example, Campbell Soup Co. had the largest move-in to 577,000 square feet in Fort Worth, and S&S Activewear took 500,000 square feet at 35/820 @ Mercantile Center.
Developers continue to show confidence that DFW will be in demand, breaking ground on 4.4 million square feet in Q2 2017. This pace is slower than in 2016, which averaged 6.9 million per quarter, indicating that developers are showing healthy restraint. Landlords continue their “whale-hunting”, seeking large tenants to fill half or all of large buildings rather than dividing space for smaller 100,000 to 200,000 square foot tenants.
The surge in speculative development finally started to show in the vacancy rate in Q1 2017, but the rate improved slightly since then, standing at 6.3% in Q3 2017. Big-Box vacancy is up 1.7% year-over-year at 10.7% in Q3. South Dallas had the highest overall vacancy rate of 13.5% as five properties over 500,000 square feet that delivered in 2017 sit entirely vacant.
Transaction volume for the market continued at a similar pace. The total for the 12-months prior to the end of Q3 2017 stood at 1.7 billion, slightly higher than the total in 2016.
OutlookDevelopers will continue to break ground on new product, but the pace of construction will slow slightly, as the abundance of new product has affected the overall vacancy rate. Speculative construction continues to dominate new builds — 82% of properties delivered in Q3 started speculative and were 57% leased at the end of the quarter. For Big-Box properties, 32 of the 36 properties under construction were speculative and were about 30% pre-leased.
While overall rental rates are up for Big-Box product, markets with high vacancy levels such as South Dallas and Alliance may see rates decline slightly or landlords offer more free rent to make these outskirts locations more appealing than tighter infill markets.
Starting this quarter, Colliers Research will segment industrial product into three categories: Warehouse/ Distribution (which is comprised of Big-Box and Non Big-Box Industrial), Manufacturing, and Flex. This facilitates more meaningful comparisons of vacancy and rental rate. The All Industrial summary is comprised of Warehouse/Distribution, Manufacturing, and Flex.
2 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
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Market Trends & Stats
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
> Big-Box product makes up the majority of warehouse/distribution absorption – with Big-Box absorbing 2.9 million square feet compared with 1.3 million for Non Big-Box.
> New deliveries exceeded net absorption by 1.6 million square feet in Q3. So far in 2017, Big-Box deliveries have totaled 14.4 million square feet and net absorption stands at 9.6 million square feet, a difference of almost 5 million square feet.
> Rental rates for Big-Box product decreased slightly due to increasing vacancy, rates fell 1.6% to $3.79 triple net. The Far North I-35E corridor, which includes North Stemmons and Lewisville, had the highest rental rates at $4.44 triple net. The West I-30 corridor posted the lowest average rates at $3.20 triple net.
> Non Big-Box warehouse/distribution product accounts for 64% of total warehouse product. In Q2 2017, it accounted for only 31% of the quarterly net absorption.
> Vacancy in the Non Big-Box sector decreased 0.1% to 7.1% for Q3, and has held steady at 4.8%, which is 9.5% below the Big-Box vacancy rate. In Q3, Northeast Dallas/Garland had the highest vacancy rate for this product type at 7.4%
> Because leased spaces and buildings are smaller, per square foot rental rates are higher, averaging $5.01 triple net for Q2 2017, which is more than $1 per square foot higher than Big-Box rates. The North I-35E Corridor had the highest average rates for this product at $6.15 triple net.
> Warehouse/distribution products are divided into Big-Box and Non Big-Box. Big-Box distribution centers larger than 200,000 square feet with a clear height greater than 28’. Non Big-Box includes everything else, including properties over 200,000 square feet that have a clear height under 28’. Because of the volume, Big-Box tend to have lower rental rates and more swings in vacancy rates.
> Total warehouse vacancy increased 0.2% from Q2, and was up 0.8% year-over-year. South Dallas had the highest vacancy rate at 16.4%, and the North I-35E Corridor was the tightest market with only 1,444,607 square feet available, a 2.6% vacancy rate.
> Activity in warehouse/distribution was steady, with 4.2 million square feet absorbed in Q2. However, year-to-date net absorption is about 28% lower than absorption through Q3 2016.
WAREHOUSE / DISTRIBUTION BIG-BOX
WAREHOUSE / DISTRIBUTION NON BIG-BOX
WAREHOUSE / DISTRIBUTION ALL
3 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non-Big Box includes all other warehouse / distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
Market Trends & StatsWAREHOUSE / DISTRIBUTION BIG-BOX
WAREHOUSE / DISTRIBUTION NON BIG-BOX
WAREHOUSE / DISTRIBUTION ALL
4 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
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Market Trends & StatsMANUFACTURING
FLEX
ALL INDUSTRIAL: BIG-BOX, NON BIG-BOX, WAREHOUSE & DISTRIBUTION, MANUFACTURING, AND FLEX
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
NEW SUPPLY ABSORPTION VACANCY
> Manufacturing space accounts for 100 million square feet, 12.5%, of the total DFW industrial market. Because of the large amount of owner occupied manufacturing space, historical vacancy rates have averaged in the 3-4% range. For Q3 2017, manufacturing vacancy stood at 3.0%.
> Year-to-date absorption for manufacturing space stood at 977,556 square feet through the first three quarters. Major move-ins include Medicore taking 114,432 square feet at 4717 Plano Pkwy and several 40,000-50,000 square foot tenants. These gains were offset by a 106,500 square foot move-out at 4012 W Illinois Ave.
> Four manufacturing properties have delivered so far in 2017 – the 540,000 square foot Farmer Brothers Coffee headquarters, a 47,500 square foot building for Sew-Eurodrive, a 19,000 square foot facility for Radio Controls Limited in Southwest Tarrant County, and a 40,000 square foot facility at 11 Prestige Circle in McKinney that was 25% leased.
> Flex product makes up 13.5% of the total DFW industrial market, or 107 million square feet. Data Centers are excluded from flex product in this report.
> The vacancy rate for flex product has been steadily dropping since its peak at 12% in 2010. In Q3 2017, flex vacancy stood at 6.3%, a slight rise from 6.2% in Q2, but well below a year prior where vacancy stood at 6.7%. Space is especially tight in North Fort Worth and East Dallas, which have a 1.2% and 1.3% vacancy rate, respectively. All flex space in the West I-30 Corridor’s 2 million square feet is fully occupied.
> Despite low vacancy and rising rent, flex construction has been limited over the past few years. So far in 2017, seven properties totaling 433,000 square feet have been delivered. Two of these properties were build-to-suits and five were speculative.
> The overall industrial market continues to be strong, with a 6.3% vacancy rate. Vacancy rose a marginal 0.1% from the prior quarter and is up 0.5% from Q3 2016.
> Over 21 million square feet of total industrial product was under construction at the end of the quarter. The average square footage of a property under construction was 290,000 square feet, up significantly from 2009-2010 when under construction properties averaged under 100,000 square feet. This shows that developers continue to favor Big-Box product.
> Year-to-date net absorption of 13.9 million square feet significantly lags net absorption for this point in 2016 which was 18.5 million square feet. Even though there have been several large leases signed this quarter that could be occupied by the end of the year, Q4 2017 would have to reach 11 million square feet of absorption to exceed 2016’s total, a number to which the DFW market has never come close.
5 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
NOTE: Statistical set includes industrial properties 10,000 SF and up, excluding data centers. Big Box is defined as warehouses 200,000 square feet and larger with 28’ clear. Non-Big Box includes all other warehouse / distribution properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting.
MANUFACTURING
ALL INDUSTRIAL: BIG-BOX, NON BIG-BOX, WAREHOUSE & DISTRIBUTION, MANUFACTURING, AND FLEX
FLEX
6 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
TENANT PROPERTY SUBMARKET SF LEASED PROPERTY TYPE DEAL TYPE SIGN DATE
Amazon 3350 Altamoore Dr SE Dallas/I-45 Ind 920,275 Big-Box New Aug 2017
Amazon 944 W Sandy Lake Rd E DFW Air/Las Colinas Ind 604,800 Big-Box New Sep 2017
XPO Logistics* 400 Dividend Dr E DFW Air/Las Colinas Ind 263,625 Big-Box New Aug 2017
Biagi Brothers 605 110th St Lower Great Southwest Ind 179,875 Non Big-Box Renewal Sep 2017
The Hillman Group, Inc. 514 Bennett Ln Lewisville Ind 165,705 Big-Box New Sep 2017
SWS Re-Distribution Company, Inc. 1440 Lemay Dr N Stemmons/Valwood Ind 127,506 Non Big-Box Renewal Jul 2017
Erect-A-Line 3912 W Illinois Ave Eastern Lonestar/Tpke Ind 113,260 Non Big-Box New Jul 2017
Custom Assembly Inc 1228 Crowley Cir N Stemmons/Valwood Ind 110,700 Non Big-Box Renewal Sep 2017
Iron Grip 3400 Northern Cross Blvd Meacham Fld/Fossil Cr Ind 96,000 Manufacturing New Sep 2017
Pentair* 1002 E Cleveland Rd SE Dallas/I-45 Ind 83,220 Big-Box New Aug 2017
Best Buy Warehousing Logistics* 9010 N Royal Ln E DFW Air/Las Colinas Ind 68,839 Non Big-Box Renewal Aug 2017
Daryl Flood 204 Airline Dr E DFW Air/Las Colinas Ind 61,335 Big-Box New Aug 2017
International Flavors & Fragrances Inc. 1505 Luna Rd N Stemmons/Valwood Ind 16,800 Flex New Sep 2017
L&B 12801 N Stemmons Fwy N Stemmons/Valwood Ind 14,200 Flex New Sep 2017
SaladMaster 4300 Amon Carter Blvd Upper Great Southwest Ind 13,495 Flex New Aug 2017
Lease Comps Year-to-date leasing activity was down 32% from the same time period in 2016. Leasing activity in Q3 was approximately 7.5 million square feet, while year-to-date activity stands at 30.6 million square feet.
PROPERTY ADDRESS SUBMARKET CLUSTER SALE DATE SALE PRICE SIZE (SF) PSF PROPERTY TYPE BUYER
825-831 E Highway 121 Far North I-35E Sep-17 $1,270,000 20,200 $63 Non Big-Box Mercer Company
1950 W Bardin Rd South Dallas Aug-17 $25,000,000 430,829 $58 Big-Box Flex-N-Gate
913 N Belt Line Rd North I-35E Corridor Jul-17 $1,100,000 26,040 $42 Non Big-Box Asdierolf Concrete
4200-4202 Wiley Post Rd Metropolitan/Addison Ind Jul-17 $1,400,000 30,000 $47 Flex Needham Roofing
500 Randall St Outlying Market Jul-17 $4,651,491 87,870 $53 Manufacturing Goff Capital Partners
5005 Samuell Blvd East Dallas Jun-17 $50,621,072 351,874 $144 Big-Box Monmouth RE Investment Corp.
634-640 107th St Great Southwest Jun-17 $4,000,000 72,900 $55 Non Big-Box Stonelake Capital Partners
201 S Interstate 45 South Dallas Jun-17 $42,000,000 758,922 $55 Big-Box Pure Industrial Real Estate Trust
8901 Forney Rd East Dallas Jun-17 $14,400,000 419,626 $34 Big-Box Dalfen America Corp
1920 Hutton Ct* Far North I-35E Corridor May-17 $3,850,000 52,613 $73 Non Big-Box Holt Lundsford Commercial
Sales Comps Investment activity through Q3 2017 is slightly ahead of where it was through the first three quarters of the prior year. Activity stood at 357 million for the quarter and 1.2 billion year-to-date. Sales averaged about $60 psf, down slightly from averages in the $70s for 2016.
*Colliers Transaction
*Colliers Transaction
7 Dallas-Fort Worth Research & Forecast Report | Q3 2017 | Industrial | Colliers International
TENANT PROPERTY SUBMARKET SF LEASED PROPERTY TYPE DEAL TYPE SIGN DATE
Amazon 3350 Altamoore Dr SE Dallas/I-45 Ind 920,275 Big-Box New Aug 2017
Amazon 944 W Sandy Lake Rd E DFW Air/Las Colinas Ind 604,800 Big-Box New Sep 2017
XPO Logistics* 400 Dividend Dr E DFW Air/Las Colinas Ind 263,625 Big-Box New Aug 2017
Biagi Brothers 605 110th St Lower Great Southwest Ind 179,875 Non Big-Box Renewal Sep 2017
The Hillman Group, Inc. 514 Bennett Ln Lewisville Ind 165,705 Big-Box New Sep 2017
SWS Re-Distribution Company, Inc. 1440 Lemay Dr N Stemmons/Valwood Ind 127,506 Non Big-Box Renewal Jul 2017
Erect-A-Line 3912 W Illinois Ave Eastern Lonestar/Tpke Ind 113,260 Non Big-Box New Jul 2017
Custom Assembly Inc 1228 Crowley Cir N Stemmons/Valwood Ind 110,700 Non Big-Box Renewal Sep 2017
Iron Grip 3400 Northern Cross Blvd Meacham Fld/Fossil Cr Ind 96,000 Manufacturing New Sep 2017
Pentair* 1002 E Cleveland Rd SE Dallas/I-45 Ind 83,220 Big-Box New Aug 2017
Best Buy Warehousing Logistics* 9010 N Royal Ln E DFW Air/Las Colinas Ind 68,839 Non Big-Box Renewal Aug 2017
Daryl Flood 204 Airline Dr E DFW Air/Las Colinas Ind 61,335 Big-Box New Aug 2017
International Flavors & Fragrances Inc. 1505 Luna Rd N Stemmons/Valwood Ind 16,800 Flex New Sep 2017
L&B 12801 N Stemmons Fwy N Stemmons/Valwood Ind 14,200 Flex New Sep 2017
SaladMaster 4300 Amon Carter Blvd Upper Great Southwest Ind 13,495 Flex New Aug 2017
16 TOTAL 10K-50K SF
7 TOTAL 50K-100K SF
13 TOTAL 100K-200K SF
23 TOTAL 200K-500K SF
6 TOTAL 500K-750K SF
4 TOTAL 750K-1M SF
UNDER CONSTRUCTION
5 TOTAL 1M+ SF
792.0M SFTOTAL INDUSTRIALINVENTORY
Q3 2017 DALLAS-FORT WORTH HIGHLIGHTS
NON BIG-BOX: 47%
FLEX: 13%
BIG-BOX: 27%
MANUFACTURING: 13%
WAREHOUSE / DISTRIBUTIONBUILDINGS BY SIZE
1 MILLION + SF
10.7%VACANCY
2,922K SFNET ABSORPTION
$3.78 / 2.9%RENTAL RATE ANNUAL CHANGE
NON BIG-BOX 4 5,397,348 0.0%BIG-BOX 25 29,330,944 5.3%
TOTAL NON BIG-BOX 7,348 BUILDINGS 374,976,227 SF
TOTAL BIG-BOX 481 BUILDINGS 212,198,049 SF
750K-1M SF
NON BIG-BOX 4 3,600,583 4.4%BIG-BOX 30 25,350,918 9.2%
500K-750K SF
NON BIG-BOX 10 6,068,179 16.3%BIG-BOX 84 49,392,754 8.1%
200K-500K SF
NON BIG-BOX 184 49,375,707 5.5%BIG-BOX 342 108,123,433 12.3%
MIKE OTILLIO KARI BEETSDirector of Research Research AssociateDIRECT +1 214 217 1232 DIRECT +1 214 217 [email protected][email protected]
Research & Forecast Report
DALLAS-FORT WORTH | INDUSTRIALQ4 2016
Déjà vu: 2016 feels like 2015 with record construction, absorption Mike Otillio Director of Market ResearchKari Beets Research AssociateLooking back at the year-end statistics for Dallas-Fort Worth’s industrial market may give déjà vu. Record construction and absorption levels are similar to what was seen at the end of 2015. Rental rate trends continued climbing upward, while vacancy continued lower than the historical average. In Q4 2015, it seemed too optimistic to think the upward trajectory would continue, but 2016 showed that the positive market fundamentals could continue to improve.
Like 2015, yearly net absorption and square footage delivered were the highest seen this cycle. Net absorption of almost 24 million square feet exceeded 2015’s level by 2.8 million square feet. The 96 properties delivered in 2016 totaled 19.7 million square feet, surpassing that delivered in 2015 by 97,000 square feet.
Investment activity continued at the same pace as Q3 2016, but was considerably off from 2015’s transaction volume. Volume for 2016 was $2.3 billion, $1.1 billion less than 2015’s level of $4.3 billion. The top investors continued to be from overseas, with Global Logistics Properties from Singapore leading recent acquisitions.
There are some causes for concern. Warehouse starts were down considerably in Q4 2016 – as only six buildings, which totaled 921,000 square feet, broke ground. While this may be a blip as investors wait for current inventory to fill, it also may signal caution by developers that the market could be overbuilt. Although vacancy is lower than a year prior, it ticked up 0.2% from Q3 to Q4. If recently-delivered inventory does not fill up quickly, rental rate decreases will soon follow.
OutlookSpeculative projects currently under construction are only 13.7% pre-leased, and vacancy will rise as these buildings are delivered. Construction starts will continue to fall as vacancy increases, especially for the large big-box product currently favored by developers.
The current political climate and talk about tariffs could make investors more cautious, especially with logistics or manufacturing operations dependent on trade with Mexico and China. Expect less interest and lower pricing for older projects or those with lower-credit tenants.
Concerns about the available labor force will increase as the market becomes more saturated with labor-intensive distribution centers such as Amazon’s new facilities some of which employ up to 1,000 people. While a concentration of major tenants signals strength in the market, new tenants may be concerned they will be unable to find employees at competitive wages.
New Supply YTD (Thousand Square Feet) 19,744 19,574 170
Under Construction (Million Square Feet) 21.8 19.3 2.4
Asking Rents Per Square Foot Per Year
Average $5.54 $4.63 $10.01
Change from prior Quarter 3.6% 2.2% 2.9%
Year-Over-Year Change 8.7% 7.3% 3.9%
Vacancy Rate> Overall vacancy increased slightly to 6.6% after reaching 6.2% in Q3, the lowest
rate in decades. Year-over-year, vacancy is down 0.4%.> Flex vacancy continued to decline, dropping from 7.9% in Q3 to 7.6% in Q4.
Warehouse vacancy increased 0.3% to 6.5%, but it remains significantly lower than the historical average. Vacancy for bulk warehouse increased to 8.8% in Q4, from 8.2% in the prior quarter.
> South Dallas saw the greatest increase in vacancy, jumping from 8% to 10.4% as the 1 million square foot warehouse in SouthPort Logistics Park was delivered vacant.
Absorption & Demand> Net absorption for the year 2016 totaled 24 million square feet, surpassing
2015’s net absorption total by more than 2.7 million square feet. This marks back-to-back record-breaking years for absorption in the DFW market.
> South Dallas absorbed over 5.8 million square feet in 2016 but saw negative absorption of 138,000 for 4Q. Negative absorption was mostly due to small move-outs, but included Sprouts vacating 117,000 SF at 101 Sunridge Blvd.
> The Great Southwest submarket saw the highest level of fourth quarter net absorption with 1.4 million square feet. Mission Foods executed a 15-year lease for 775,094 square feet at 2404 W Pioneer Pky and Rooms To Go moved into 234,100 square feet at 2251 E Bardin Road.
> East Dallas was the only submarket to see negative net absorption for the year with a total of -71,221 square feet.
Rental Rates> Average asking rates increased significantly from Q3 to Q4. Warehouse rates
jumped 2.2% from $4.53 to $4.63 triple net. Flex asking rates increased 2.9%, topping $10 on average.
> Warehouse asking rates in South Dallas climbed 3.7% from $3.50 to $3.63, but remain the least expensive in the metroplex. Asking rates in the Alliance warehouse market were flat from Q3 to Q4, and decreased only $0.02 from Q2, as vacancy in the market increased slightly.
Construction> At the end of Q4, about 21.8 million square feet of industrial and flex was under
construction, just above Q4 2015’s totals of 20.6 million square feet.
> Warehouse construction starts fell considerably with only six buildings, which totaled 921,000 square feet, breaking ground in the quarter.
> The percentage of spec warehouses under construction in Q4 was 84%, a decrease from the prior quarter, when 91% of under construction product was spec. Speculative warehouses delivered in Q4 were 43% leased, while 13% of deliveries were build-to-suit.
2 Dallas-Fort Worth Research & Forecast Report | Q4 2016 | Industrial | Colliers International
NOTE: Statistical set includes all industrial properties 10,000 SF and up, excluding heavy manufacturing properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting. Sources: CoStar Property, Colliers Research
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
1 Alliance 9 North US 75 Corridor37.8m SF 12.2% Vac UC = 1.8m SF $ 3.71 PSF 44.7m SF 5.5% Vac UC = 0.8m SF $ 9.08 PSF
2 DFW Airport 10 Northeast Dallas / Garland69.7m SF 6.6% Vac UC = 2.8m SF $ 5.78 PSF 49.5m SF 6% Vac UC = 2.2m SF $ 4.25 PSF
3 East Dallas 11 South Dallas36.2m SF 6.3% Vac UC = 0.3m SF $ 4.49 PSF 67.1m SF 10.1% Vac UC = 4.6m SF $ 3.69 PSF
4 Far North I-35E Corridor 12 South Fort Worth73.8m SF 6.6% Vac UC = 1.6m SF $ 5.78 PSF 67.7m SF 3.7% Vac UC = None $ 4.26 PSF
5 Great Southwest 13 West I-30 Corridor103.3m SF 6.9% Vac UC = 5m SF $ 4.46 PSF 35.5m SF 16.1% Vac UC = 0.5m SF $ 4.26 PSF
6 Metropolitan / Addison 14 Outlying21.2m SF 5.7% Vac UC = None $ 7.60 PSF 52m SF 3.4% Vac UC = 1.5m SF $ 7.67 PSF
7 North Fort Worth Total Industrial Market37.5m SF 5.7% Vac UC = 0.6m SF $ 4.55 PSF 789.8m SF 6.6% Vac UC = 21.8m SF $ 5.54 PSF
8 North I-35E Corridor87m SF 2.9% Vac UC = None $ 7.84 PSF
463 Bldgs
2,448 Bldgs
858 Bldgs
914 Bldgs
685 Bldgs
1,552 Bldgs
402 Bldgs
932 Bldgs
12,726 Bldgs
UC = Under Construction
219 Bldgs
690 Bldgs
735 Bldgs
896 Bldgs
1,460 Bldgs
463 Bldgs
Research & Forecast Report
DALLAS-FORT WORTH | INDUSTRIALQ3 2016
Investor confidence high, fueling spec construction and record pricing Mike Otillio Director of Market ResearchKari Beets Research AssociateConfidence in the Dallas-Fort Worth industrial market is high. Developers continue to break ground on new projects, and investors are buying and selling at record prices. This confidence is not unfounded – the DFW region’s role in the global cargo network is growing, job growth is steady, and real estate fundamentals continue to improve even after reaching their best levels in over a decade.
DFW’s central location attracts companies seeking a location at the midpoint between the coasts with additional global access through DFW Airport. In August 2016, over 71,000 tons of cargo went through the airport, a 21.7% increase over the prior year. Jobs grew 3.4% from August 2015-2016, and in its Beige Book the Dallas Federal Reserve noted increasing output and a more positive outlook for manufacturing.
Port Logistics Realty’s SouthPort Logistics Park is the largest business park under construction with two buildings totaling almost 1.5 million square feet. This is just the first phase in the three phased development which will ultimately include 8 million square feet.
Construction of smaller product has increased in response to demand from small tenants. At the end of Q3, 30 of the 96 buildings under construction were less than 50,000 square feet. Several of these buildings are in Prosper Business Park which will lease spaces as small as 5,000 square feet in the 20,000 to 25,000 square foot buildings.
Investment activity continues to be strong, and buyers are pushing cap rates lower as they compete for product. Cap rates for big-box warehouses with credit tenants have traded in the 4-5% range for the last several quarters, and smaller industrial properties have seen increased interest and lower cap rates as well. Light industrial products with higher office finish have seen a drop in cap rates from 6-7% to 4-5% from 2013 to 2016. Institutional investors are showing interest in light industrial product, driving more competitive pricing.
OutlookConstruction starts fell slightly last quarter but are likely to pick up in the early quarters of 2017, as the market is on pace to absorb more than was delivered for the second year in a row.
Rental rates are expected to rise in Q4, especially for smaller product as demand is high and the vacancy rate is at its lowest level in 16 years.
Investors will push industrial cap rates lower as they seek a stable yield among the uncertainty in the economic and political climate. Credit tenants and developers will seek to capitalize on the strong market through sale-leasebacks or selling as soon as properties stabilize.
New Supply YTD (Thousand Square Feet) 15,283 15,113 170
Under Construction (Million Square Feet) 22.4 20.9 1.4
Asking Rents Per Square Foot Per Year
Average $ 5.34 $ 4.53 $ 9.75
Change from prior Quarter 1.3% 0.4% 2.3%
Year-Over-Year Change 6.6% 6.6% 8.2%
Vacancy Rate> Overall vacancy declined 0.6% to 6.4% in Q3 2016, the lowest rate since Q2
2000. Year-over-year vacancy is down 0.9%.> Warehouse vacancy decreased 0.7% from Q2 to Q3 after increasing between
Q1 and Q2. Flex vacancy continued its steady decline, dropping from 8.2% to 7.9% in Q3.
> Vacancy for big-box product declined from 9% to 8.2% in Q3, remaining significantly higher than the overall vacancy rate.
Absorption & Demand> Year-to-date absorption is set to surpass 2015’s level of 20.5 million square
feet. Through Q3 2016, 18.8 million square feet have been absorbed, leaving just 1.7 million to be absorbed in Q4 to surpass 2015. On average, over 5 million square feet have been absorbed each quarter for the last three years.
> South Dallas continued to see high absorption, with 2.5 million absorbed this quarter, putting the year-to-date total for the submarket at 6 million square feet. NFI’s 1.1 million square foot lease at 501 Danieldale Road accounted for almost half of the quarter’s absorption, and Medline’s move to its Wilmer distribution center added 670,000 square feet.
> North Fort Worth had the second highest level of absorption at 1.9 million square feet. Lego Systems’ move to 1.4 million square feet at 5600 Mark Iv Parkway accounted for almost all of this quarter’s absorption. Saddle Creek Transportation also added 430,500 square feet of absorption from its move to 4670 Railhead Road.
Rental Rates> Rental rates increased, but at a slower rate than in prior quarters. Warehouse
rates only increased $0.02, from $4.51 to $4.53 triple net. Average asking rates for flex product increased 2.3% to $9.75 triple net.
> Warehouse space continued to be least expensive in South Dallas, where rates climbed $0.03 to $3.50 triple net. The North US 75 Corridor, comprised of Allen, McKinney, Plano, and Richardson is the most expensive submarket in the metroplex, with average rates of $6.39 triple net.
Construction> About 22.4 million square feet was under construction at the end of the
quarter. 4.6 million square feet broke ground, just under the quarterly average for the past three years of 4.7 million. Of the total, 1.4 million was flex, including a one-million square foot data center by RagingWire Data Centers.
> Of projects under construction, 91% of the warehouse square footage was spec, while only one 28,000 flex project is spec. Spec warehouse projects were 21% leased at the end of Q3.
2 Dallas-Fort Worth Research & Forecast Report | Q3 2016 | Industrial | Colliers International
-1 3 7
AllianceDFW AirportEast Dallas
Far North I-35E CorridorGreat Southwest
Metropolitan / AddisonNorth Fort Worth
North I-35E CorridorNorth US 75 Corridor
Northeast Dallas / GarlandSouth Dallas
South Fort WorthWest I-30 CorridorOutlying Metroplex
MillionsAbsorption Under Construction
Job Growth & Unemployment(not seasonly adjusted)
Unemployment 8/2015 8/2016
DFW 4.1% 4.1%
Texas 4.5% 4.9%
U.S. 5.2% 5.0%
Job GrowthAnnual Change
# of Jobs Added
DFW 3.4% 117.3K
Texas 1.6% 190.6K
U.S. 1.7% 2,443.0K
Under Absorption & Construction (YTD)
Flex/Warehouse Vacancy Breakdown
Flex9.7%
8,964,752 SF
Warehouse6.1%
41,087,307 SF
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-6,000,000
-3,000,000
0
3,000,000
6,000,000
9,000,000
12,000,000
15,000,000
18,000,000
21,000,000
24,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
New Supply Absorption Vacancy
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-6,000,000
-3,000,000
0
3,000,000
6,000,000
9,000,000
12,000,000
15,000,000
18,000,000
21,000,000
24,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
New Supply Absorption Vacancy
New Supply, Absorption & Vacancy Rate
3 Dallas-Fort Worth Research & Forecast Report | Q3 2016 | Industrial | Colliers International
NOTE: Statistical set includes all industrial properties 10,000 SF and up, excluding heavy manufacturing properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting. Sources: CoStar Property, Colliers Research
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
1 Alliance 9 North US 75 Corridor35.8m SF 11.9% Vac UC = 2.6m SF $ 3.71 PSF 44.4m SF 5% Vac UC = 0.3m SF $ 7.54 PSF
2 DFW Airport 10 Northeast Dallas / Garland69.5m SF 7.7% Vac UC = 1.3m SF $ 5.73 PSF 49.3m SF 6.5% Vac UC = 1.6m SF $ 4.25 PSF
3 East Dallas 11 South Dallas36.1m SF 6.4% Vac UC = None $ 4.25 PSF 65.3m SF 7.8% Vac UC = 6.3m SF $ 3.54 PSF
4 Far North I-35E Corridor 12 South Fort Worth73.1m SF 7% Vac UC = 1.5m SF $ 5.23 PSF 67.5m SF 3.7% Vac UC = 0.3m SF $ 4.35 PSF
5 Great Southwest 13 West I-30 Corridor101.2m SF 6.5% Vac UC = 6.4m SF $ 4.43 PSF 35.2m SF 15.1% Vac UC = 0.8m SF $ 4.28 PSF
6 Metropolitan / Addison 14 Outlying21.3m SF 5.8% Vac UC = None $ 7.76 PSF 51.8m SF 3.2% Vac UC = 0.8m SF $ 7.70 PSF
7 North Fort Worth Total Industrial Market37m SF 5.6% Vac UC = 0.4m SF $ 4.34 PSF 781.7m SF 6.4% Vac UC = 22.4m SF $ 5.34 PSF
8 North I-35E Corridor87.7m SF 3.1% Vac UC = None $ 7.73 PSF
464 Bldgs
2,455 Bldgs
859 Bldgs
914 Bldgs
683 Bldgs
1,549 Bldgs
401 Bldgs
921 Bldgs
12,693 Bldgs
UC = Under Construction
209 Bldgs
689 Bldgs
735 Bldgs
893 Bldgs
1,454 Bldgs
464 Bldgs
Research & Forecast Report
DALLAS/FORT WORTH | INDUSTRIALQ2 2016
DFW Leads Nation in Industrial Construction, but More Small Product NeededMike Otillo Director of Market ResearchKari Beets Research AssociateThe Dallas-Fort Worth industrial market continued to ride a rising tide of increasing rents and strong demand in Q2 2016, propelling the area to the highest levels of construction in the nation. So far in 2016, over 2.9 million square feet of spec “big box” warehouses have been delivered, and these properties are 55% leased.Mid-size tenants looking for spaces between 25,000 and 150,000 continue to find limited options in the market, especially in Fort Worth. To get the most out of their land investments, developers are focusing on constructing larger buildings that are not divisible to these smaller sizes. Warehouses under construction with a 28’ clear ceiling height required for distribution uses had an average size of 340,000 square feet, with many seeking a single tenant.Investment activity declined slightly in Q2 2016 in terms of transaction sizes, but the average price per square foot continues to rise and cap rates continue to decline – reaching 6.8% on average, but cap rates have been as low at 4.5% for credit tenants with long-term leases. Institutional capital comprised a smaller percentage of deals so far in 2016 than in 2015, but private investment rose from 23% of activity in 2015 to 41% so far in 2016 to bring it more in line with investment activity in the U.S. as a whole. With yields so low, expect investors to continue focusing on development rather than purchasing existing properties.Because of its increasing role as an inland port, Dallas-Fort Worth has remained isolated from the negative trends in other areas of the Texas industrial economy. Texas manufacturing activity continued to decline in June, but less so than earlier in the year. Trade, transportation, and utilities employment in Dallas-Fort Worth continued its growth trend, adding 37,500 jobs from May 2015 to May 2016. E-commerce sales across the U.S. grew 15.1% from Q1 2015 to 2016, according to the U.S. Census Bureau. As retailers increasingly focus on e-commerce, sales, construction, and investment in the Dallas-Fort Worth warehouse market will also grow.OutlookDue to rain, deliveries in Q2 were slower than the 7 million expected, but construction is expected to pick up in the second half of 2016. Currently 17 million square feet is expected to deliver, which will raise the total deliveries for 2016 to 26 million. As demand is strong for smaller tenant spaces and there are several large tenants circling the market, expect vacancy rates for mix-sized big boxes to rise 0.2 to 0.5%. With over 22 million square feet under construction, developers now breaking ground will look to differentiate their product through looking for infill sites with better access and adding high-quality finishes. Expect rates to continue to rise in response to increasing construction costs.
Vacancy Rate> Overall vacancy increased slightly to 7.0% in Q2 2016 from 6.7% in Q1. Year-
over-year vacancy is down 0.1%.> Warehouse vacancy increased 0.4% from Q1 to 6.8%, while flex vacancy
decreased from 8.7% in Q1 2016 to 8.5% in Q2.> The vacancy rate for properties between 100,000 and 250,000 square feet rose
1% to 6.9%.
Absorption & Demand> South Dallas saw the highest level of absorption so far this year, with over
2.5 million occupied in Q2 2016. South Fort Worth saw the second-highest absorption level with 482,890 square feet absorbed.
> Year-to-date net absorption for Q2 was 9,088,031 square feet, 16% behind the same time in 2015. Absorption in Q2 was less than half Q1 2016’s rate of 6.3 million square feet.
> Major move-ins in Q2 2016 included Kimberly Clark occupying 874,00 square feet on Mountain Creek Parkway, Shippers Warehouse’s move into 1005 Wintergreen in Hutchins, and Mother Parkers Tea & Coffee taking 417,000 square feet in South Fort Worth
Rental Rates> Rental rates continued to increase, climbing to $5.28 in Q2 2016 from $5.09 in
Q1. Warehouse space averaged $4.51 PSF, while flex rates averaged $9.67, both increasing $0.20 from prior quarter.
> Rates for warehouse space in South Dallas continued to be the lowest in the market, even as rates rose slightly to $3.47. East Dallas rates closely compete with South Dallas, with rates only $0.22 higher at $3.69 PSF.
> After experiencing a slower rate growth in late 2015, average warehouse rents jumped 4.7% from Q1 to Q2 2016. Rate growth should be slower through the second half of 2016 to accommodate this jump and new product that is coming on line.
Construction> At the end of Q2 2016, over 22 million square feet in 97 buildings was under
construction. Of this total, 454,460 square feet was flex product and almost 21.6 million was warehouse product.
> Projects under construction are about 27% leased; however, projects completed in 2015 are 84% leased, showing there is strong demand for new product.
2 Dallas/Fort Worth Research & Forecast Report | Q2 2016 | Industrial | Colliers International
-1
AllianceDFW Airport
East DallasFar North I-35E Corridor
Great SouthwestMetropolitan / Addison
North Fort WorthNorth I-35E CorridorNorth US 75 Corridor
Northeast Dallas / GarlandSouth Dallas
South Fort WorthWest I-30 CorridorOutlying Metroplex
MillionsAbsorption Construction
3 7
Job Growth & Unemployment(not seasonly adjusted)
Unemployment 05/15 05/16
DFW 4.0% 3.5%
Texas 4.3% 4.2%
U.S. 5.3% 4.5%
Job GrowthAnnual Change
# of Jobs Added
DFW 3.7% 125.3K
Texas 1.5% 171.8K
U.S. 1.6% 2,324.0K
Under Absorption & Construction (YTD)
Flex/Warehouse Vacancy Breakdown
Flex8.5%
9.620,523 SF
Warehouse6.8%
44,894,389 SF
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-6,000,000
-3,000,000
0
3,000,000
6,000,000
9,000,000
12,000,000
15,000,000
18,000,000
21,000,000
24,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
New Supply Absorption Vacancy
0%
5%
10%
15%
20%
25%
0
2,500,000
5,000,000
7,500,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
New Supply Absorption Vacancy Rate
Squa
re F
eet
Vaca
ncy
Rate
New Supply, Absorption & Vacancy Rate
3 Dallas/Fort Worth Research & Forecast Report | Q2 2016 | Industrial | Colliers International
NOTE: Statistical set includes all industrial properties 10,000 SF and up, excluding heavy manufacturing properties. While CoStar attempts to provide the most accurate data at the end of every quarter, revisions are made throughout the year accounting for discrepancies in past reporting. Sources: CoStar Property, Colliers Research
4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
Construction Boom Continues as Rates, Demand Continue to GrowMike Otillo Director of Market ResearchKari Beets Research Associate
The construction boom continued in Dallas-Fort Worth’s industrial market in Q1 2016. Over 4 million square feet was delivered to the market and 20 million is still under construction. This level of construction surpassed even Inland Empire (California), which had 15 million square feet under construction at the end of Q1. Buildings under construction in DFW were 34% pre-leased at the end of the quarter, which is up from 20% at the end of Q4 2015.
Large distribution centers of over one million square feet are becoming more prevalent, fueling speculation that the market is being over built; however, 15 of the 18 distribution centers that are over 1 million square feet are leased. E-commerce has been fueling a large part of the demand for the large warehouses, as retailers respond to consumer’s demand for more products faster. Walmart.com and Amazon are some of the recent tenants for these million square footers. Some retailers are also leasing smaller distribution centers closer to the population in order to provide faster local delivery.
Economic conditions in the Dallas-Fort Worth area remain strong, despite challenges in other parts of Texas tied to the downturn in the oil industry. The Dallas Federal Reserve noted an increase in the production index in March, rebounded from negative rates in the first two months of 2016. Additionally, due to increased credit availability, consumer spending has continued to rebounding from its post-recession lows, fueling more demand for ecommerce.
Overall market fundamentals continue to trend in positive directions – rental rates increased 5.3% from Q1 2015 and vacancy decreased 0.7% year-over-year. Net absorption exceeded Q1 2015’s level by 559,590 square feet. If similar levels of absorption can be sustained throughout the year, the market will reach just over 21 million square feet of absorption.
OutlookAs the Dallas-Fort Worth industrial market continues to have strong demand, developers will break ground on new projects. Currently there are 14 proposed buildings of 1 million square feet or more, and while some will wait for anchor tenants, developers may break ground on some as speculative projects. With over 7 million square feet set to deliver in Q2 2016 and almost 10 million to be completed in Q3, expect vacancy to rise 0.5-0.8% in the next several quarters.
Although the large warehouses have been making headlines, vacancy for small warehouses between 25,000 and 100,000 SF stood at 4.7%, while larger warehouses 500,000 SF and up have been at 10.5%. With low vacancy of small product, developers are likely to see opportunity in this segment and focus on smaller distribution centers.
Market IndicatorsRelative to prior period
AnnualChange
Quarterly Change
2nd Qtr. Forecast*
VACANCY
NET ABSORPTION
UNDER CONSTRUCTION
RENTAL RATE
*Projected
Summary Statistics DFW Industrial Market
DFW Market
DFW Warehouse
DFW Flex
Vacancy Rate 7.0% 6.7% 8.9%
Change from prior Quarter -0.2% -0.2% -0.2%
Absorption (Thousand Square Feet) 5,389 5,132 257
New Supply (Thousand Square Feet) 4,182 4,100 82
Under Construction (Thousand Square Feet) 20,014 19,585 429
Vacancy Rate> Vacancy decreased slightly in Q1 2016 to 7.0% from 7.2% at the end of
Q4 2015.> Year-over-year, vacancy is down 0.7% from Q1 2015, and only 0.2%
above a trough of 6.8% in Q3 2015.> Over 52 million square feet was vacant at the end of Q1 2016, which is
almost four million less than at the end of Q1 2015. Sublease vacancy has been almost negligible, hovering around 1 million square feet, 1.9% of all vacant space, for the last several years.
Absorption & Demand> The areas of the DFW with the highest absorption rate this quarter were
Alliance, Great Southwest, and North Fort Worth.> Net absorption for Q1 2016 in DFW totaled 5,389,157 square feet, 14.9%
higher than net absorption in Q1 2015.> Major move-ins for Q1 2016 include Niagara Bottling occupying 630,000
SF at 12000 Grady Niblo Rd, and Walmart.com’s lease of over 1 million SF in Alliance.
Rental Rates> The average rental rate for Q1 2016 was $5.40, which is a slight
$0.07 increase from Q4 2015. The average flex rate was $9.45, while warehouse averaged $4.42.
> South Dallas continued to have the lowest warehouse rate at $3.54 per square foot, while the North US 75 Corridor had the highest rates of $7.00.
> Warehouse rental rates have experienced slower growth over the past two quarters, and should level off slightly in the coming quarters. Rates are falling in some markets that have seen a lot of construction such as Alliance, where rates fell 2.1%, and Far North I-35E Corridor where rates fell $0.11 from Q1 2015.
Construction> At the end of Q1 2016, there were 73 buildings totaling over 20 million
square feet under construction in the Dallas-Fort Worth market. Such levels of construction have not been seen since Q4 2007.
> The average size of industrial and flex buildings under construction at the end of Q1 2016 was 274,176 SF, which is up about 215,000 SF from the trough in late 2009-2010, and up 80,000 from the average size in the last building boom in Q4 2007.
2 Dallas/Fort Worth Research & Forecast Report | Q1 2016 | Industrial | Colliers International
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Alliance
East Dallas
East Dallas
Far North I-35E Corridor
Great Southwest
Metropolitan / Addison
North Fort Worth
North I-35E Corridor
North US 75 Corridor
Northeast Dallas / Garland
South Dallas
South Fort Worth
West I-30 Corridor
Outlying Metroplex
Millions
Construction Absorption
Job Growth & Unemployment(not seasonly adjusted)
Unemployment 03/15 03/16
DFW 4.1% 3.7%
Texas 4.3% 4.5%
U.S. 5.7% 5.1%
Job GrowthAnnual Change
# of Jobs Added
DFW 3.9% 129.9K
Texas 1.6% 185K
U.S. 1.9% 2,778K
Under Construction & Absorption (YTD)
Flex/Warehouse Vacancy Breakdown
Flex8.9%
10,178,536 SF
Warehouse6.7%
43,638,786 SF
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
-6,000,000
-3,000,000
0
3,000,000
6,000,000
9,000,000
12,000,000
15,000,000
18,000,000
21,000,000
24,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
New Supply Absorption Vacancy
0%
5%
10%
15%
20%
25%
0
2,500,000
5,000,000
7,500,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
New Supply Absorption Vacancy Rate
Squa
re F
eet
Vaca
ncy
Rate
New Supply, Absorption & Vacancy Rate
3 Dallas/Fort Worth Research & Forecast Report | Q1 2016 | Industrial | Colliers International