TEXAS SNAPSHOT, SEPTEMBER 2009

Dallas Industrial Market

Sharon Morrison

There are several trends that are shaping the Dallas market right now. The uncertainty of financial markets and lack of liquidity is certainly hampering the market. Limited access to capital is withholding business expansion. We are also working with motivated landlords that are helping make successful tenant representation transactions, whether it is a restructure or a new deal. Equity is sitting back and watching/waiting for values to continue to fall.

I’m seeing shorter term commitments on renewals; tenants are reluctant to make large commitments. There is minimum activity in the market as tenants are just making do with what they have. There is growing space availability as more bankruptcies create more inventory — and also opportunities. For example, tenants like Home Interiors and Fitz & Floyd have left the market, creating more available space. There are many 30,000-square-foot to 80,000-square-foot clients in the market but not as many big deals. We have made some deals on space and land that had previously not been available.

Tenants are looking for facilities with extra storage areas and ability to secure the truck court. Facilities that have access to D/FW airport and 30 foot clear height or greater are a big plus in this market. Obviously, industrial facilities that are offering the cheaper rates are a clear winner with tenants. The newer facilities have tax abatements, making them even more competitive. Tenants are really looking at landlord stability too; that seems to be increasingly more important. There are buildings that were strictly lease-only in the past that are now available for purchase and are getting increased attention by users who want to own their real estate.

There is very minimal new development in the market. Nothing has really been started within last 6 months. At this time and for probably several years to come, we do not need any new development. There is ample inventory in all markets.

Hot spots of development in the past couple of years have been south on Interstate 45 (Wilmer Hutchins), Alliance Airport and the area north of D/FW airport. Carrollton remains active due to proximity to the airport and its lower rates. Also, land on D/FW airport is doing really well.

Lease activity is extremely slow, transactions are taking longer and investment sales are more or less nonexistent. But, deals are happening. Prospective users are looking for the national economy and job growth to improve before making longer term decisions. While it will probably another 6 to 12 months before we begin to see a turn around, it is coming. Right now, we are still watching the business owners lay low and weather the storm. Overall, Dallas/Fort Worth remains one of the best places to be. We are lucky that despite the unprecedented economic downturn we are still seeing activity.

— Sharon E. Morrison, SIOR and principal of Transwestern’s Dallas office.

Cadence McShane Completes Large-Scale Spec Project in South Dallas In late July, Cadence McShane Construction Company completed South Pointe Corporate Center, a 442,465-square-foot, speculative distribution facility located at the interchange of Interstate 20 and Houston School Road in the south Dallas suburb of Lancaster, Texas. Developed by White Rock Commercial, the facility is designed for tenants of 100,000 square feet or larger, and features 85 trailer docks and 54 trailer parking space. While no tenants had been secured as of press, several prospects are in talks. — Coleman Wood South Pointe Corporate Center TREB: What is the significance of constructing such a large speculative project in a down market? Does it demonstrate the strength of the project, the strength of the DFW industrial market, or both? Harper: The project was initially started 9 or 10 months ago and, at that point in time, the market was a little different than it is today — things did not appear to be so bad. If it was starting today, it wouldn’t happen. That being said, most developers we are working with still feel strong about the south Dallas market. I think it’s still going to attract a lot of industrial use, and I still believe it’s one of the stronger markets we have in Dallas. TREB: Cadence McShane is currently involved in quite a few industrial projects in the market. How is the company able to stay so active when so many other construction companies are struggling? Harper: To some degree, we’re all struggling. Part of the way we’ve designed our com-pany is we keep a fairly equal share of work in the public sector as well as the private sector. We’re not doing as much work in the private sector as we were 2 years ago or even last year. However, a lot of clients are build-to-suit developers and those types of developers still have some opportunities out there — not as many, but some. We also market directly to users. Right now, our public sector work is as active as its ever been, and we’re trying to shift some of our resources into those areas, since the private sector is so down. TREB: How do you think the DFW industrial sector will fare for the rest of the year? How long will a recovery take? Harper: We’re not going to see a lot of industrial development going forward. There’s still some leasing activity, but there is a lot of product and it’s going to take a while to absorb it. From a financing standpoint, you’re not going to see new speculative starts. You will probably see some starts that are direct user deals build-to-suits for a specific purpose. The good news is we have not overbuilt as much as in previous recession cy-cles. We’re anticipating a year to 2 years of fairly lean times in the industrial segment, but there’s still reason to believe we are in a better market than many.

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