TEXAS SNAPSHOTS, APRIL 2005

Dallas Industrial Market

Robert Kramp, Director, Grubb & Ellis Houston

Enhancements in distribution logistics and the growth of the warehouse-format retailer have spurred the trend toward big box regional distribution centers. And Dallas/Fort Worth has emerged as a key market for companies seeking to consolidate their distribution activities, says Kramp. These large build-to-suit distribution centers have driven supply and demand in recent years. Following retailers such as The Container Store and Rooms-To-Go, Del Monte has opened a 687,500-square-foot distribution hub in the first quarter. Bandera Ventures has broken ground on a 400,000-square-foot industrial building and Trammell Crow Company has completed Trade Center 1, a 630,800-square-foot building in Dallas/Fort Worth’s International Commerce Park.

Kramp notes, “By strategically establishing their major distribution hubs within close proximity to Houston, San Antonio and Austin, retailers and consumer manufacturers are able to serve the bulk of the central U.S. population in a day’s drive.”

According to Kramp, of the 2.9 million square feet of industrial product currently under development in the Dallas/Fort Worth Metroplex, approximately half is concentrated within the south Dallas and DFW Airport submarkets. “Most notably, Hillwood Investment Properties intends to expand Lakeside Trade Center, an 82-acre distribution development now being prepped for another 1.4 million square feet within the DFW Airport submarket,” he says. “Also, Koyo Steering Systems of North America will build a 240,000-square-foot advanced technology automotive parts manufacturing facility on 40 acres in Ennis, Texas, just south of Dallas.”

It is in these hot markets that future activity will continue to occur. The DFW Airport area is a leading submarket for industrial growth in the Metroplex, offering Triple Freeport Exemption, additional real estate and property tax abatements, and the Foreign Trade Zone #39. The submarket will continue to grow as aggressive capital and quick construction cycles bring new development in 2005, Kramp says.

One specific development to watch for future growth is Hillwood’s AllianceTexas. In November 2004, MT Cole Trust, Burlington Northern Santa Fe Railroad and Hillwood Alliance became partners in a 1,671-acre expansion of the 65-square-mile, master-planned business community. By spring, Hillwood plans to operate the largest industrial park of its kind in the United States, with direct air, rail and interstate access.

The industrial market in Dallas/Fort Worth is a large, sustained enterprise, and continued success is expected for this year. Rental rates range from a low of $3.04 in north Fort Worth to a high of $9.09 in east Dallas for general industrial use buildings; $6.39 in north Fort Worth to $8.53 in northwest Dallas for R&D flex space; and $3.11 in south Dallas to $4.08 in northwest Dallas for warehouse and distribution space.

Vacancy also varies depending on the usage and submarket. According to Grubb & Ellis’ industrial market report for the fourth quarter of 2004, the average vacancy rate for all industrial properties in the Dallas/Fort Worth market was 10.3 percent. Vacancies across all product types range from 1.9 percent in north Fort Worth to 16 percent in the DFW Airport and Great Southwest Parkway submarkets.

Regarding the future of the industrial market, Kramp surmises, “The health of the Dallas area industrial market remains tied to economic fundamentals such as long-term interest rates, the value of the dollar (which stimulates international trade), taxes and energy prices.  Even though the U.S. dollar has declined in the past 2 years, strong productivity has been subduing inflationary pressure. States such as Texas that contain a high proportion of manufacturing jobs will be the national leaders in new job creation in the service sector.” The Dallas/Fort Worth market shall remain a beneficial economic option for companies seeking to establish industrial business hubs in a strong, stable market.

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