TEXAS SNAPSHOT, JANUARY 2007

Dallas Industrial Market

Dallas’ industrial market is seeing the emergence of its southern sector, according to Ken Wesson, co-founding principal of Lee & Associates’ Dallas office. “This area will take advantage of intermodal facilities, superior highway accessibility and affordable land opportunities,” Wesson says. “The second trend to follow is the development of super-sized speculative buildings, which are 500,000 square feet or greater.”

A perfect example of a significant industrial development in Dallas is The Allen Group’s vision and courage to assemble 6,000 acres in the Dallas logistics hub. “It is ironic that it took an out-of-state developer to see the opportunity here without prejudice,” he says. “In the long term, this will have an ‘Alliance Airport’ type of positive impact to the region.”

Currently, the majority of industrial development is taking place at or near the Dallas/Fort Worth International Airport with approximately 6.57 million square feet of development either planned or underway. “DFW Airport is ranked as ‘The Best Cargo Airport in the World’ by Air Cargo World and end-users like to have their goods as close as possible to maximize the logistics cycle,” Wesson says.

Developers such as Cabot, The Allen Group and Majestic Realty, all of which are new to the Dallas market, are trying to attract a variety of tenants to their properties. “There isn’t a niche sector that everyone is chasing,” Wesson says. “Dallas is fairly diversified now.” And, as far as major tenants absorbing space go, Wesson adds, “With an industrial base of 650 million square feet and growing, it is tough for just one company to make a noticeable impact.”

An impact is definitely being made in the market’s occupancy numbers, regardless of who is taking the space. The overall vacancy in the Dallas/Fort Worth industrial market at the end of the third quarter 2006, according to Costar, was 10.5 percent. “The lowest vacancy rate was 5.4 percent in the North Fort Worth submarket and the highest was 14.8 percent in the DFW Airport submarket due to all the new product coming online,” Wesson says.

As for rental rates, for new speculative development, quotes are ranging from $3.25 NNN to $3.75 NNN. Deals on an effective basis are getting done sub $3.00 NNN on bulk transactions (250,000 square feet and greater). “I would expect rental rates to rise some in 2007,” Wesson says. “With land/development costs increasing at double digit rates, interior finish costs up and with stabilized or slightly increasing cap rates, developers’ yields have decreased to the point that something’s got to give.”

In the future, the area to keep an eye on is the southern sector located between interstates 20 and 35 and interstates 20 and 45 in the Lancaster and Wilmer/ Hutchins area. “Union Pacific has an existing intermodal facility already located there, and BNSF is studying the feasibility of a second location in addition to their Alliance Airport location,” Wesson says. “Between Union Pacific, BNSF and the abundant land available for development, I expect this to become a 20 million-square-foot submarket within 10 years.”

— Ken Wesson is co-founding principal of Lee & Associates’ Dallas office.

©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.