Dallas-Fort Worth Industrial Market Update - Q4 2023

Below are 5 takeaways from our 2023 Q4 Industrial Market Report. Read Full Report Here

1. Vacancy Rate Climbs Despite Positive Absorption:

• Despite positive net absorption of 4.8 million SF, speculative deliveries have led to a rise in vacancy rates to 9.4%.

• The construction pipeline is shrinking, reducing the risk of overbuilding, but challenges in obtaining financing for new projects contribute to the current vacancy levels.

2. Rent Growth Remains Strong Across Product Types:

• Industrial rent growth is robust at 20.2% year-over-year, reaching an average of $7.78 nnn.

• Flex rent growth is steady at 6.8% year-over-year, with average rents at $12.81 nnn.

• Annual rent escalations are higher than pre-pandemic norms, ranging from 3.5% to 5.0% per year, driven by rising finish-out costs.

3. Construction Pipeline Contracts, but Leasing Velocity Remains High:

• Speculative projects totaling 17.8 million SF were delivered, bringing the total speculative construction underway to 23.6 million SF, the lowest since late 2020.

• Leasing velocity in new construction remains above average, with 5.9 million SF leased this quarter and 30.6 million SF leased over the last 12 months.

• While the overall construction pipeline is shrinking, the high level of vacant space in new properties and projects under construction suggests elevated vacancy rates for the next 12 months.

4. Vacancy Challenges in Periphery Submarkets:

• Deliveries in periphery submarkets have resulted in double-digit vacancy levels, creating a surplus that may take three years or more to absorb.

• Core submarkets with limited construction are expected to maintain tight market conditions, but larger blocks may become available as tenants relocate to newer buildings.

5. Market Outlook and Investor Interest:

• Rent growth is expected to continue, albeit not at the levels seen over the last 24 months, as vacancy remains below long-term average levels.

• Rising interest rates pose a challenge to asset prices and new project underwriting, but investor interest remains strong.

• Some investors are pausing acquisitions and new projects as they await price discovery in the market. Core submarkets are well-positioned for additional projects, while challenges persist in periphery submarkets.