DFW INDUSTRIAL Market Experts

Hlc Outlook

The DFW industrial market experienced continued (but measured) growth and activity during the second quarter of 2023. Tenant demand for industrial space remained steady, fueled by the region’s strong economy and favorable business climate. Q2 2023 marked the 51st consecutive quarter of positive net absorption (more than 12 years). The market posted 6.7M SF of positive net absorption at Q2, and totals 16M SF positive net absorption for mid-year 2023. The DFW industrial market is still on pace to outperform historical annual absorption figures.

Although the under-construction figures hit a new high watermark at YE 2022, supply and demand remain relatively healthy. Q2 2023 reported 16M SF of new product delivered and consequently, the overall DFW vacancy rate increased approximately 100 basis points to 7.2%. Roughly 12% of the new deliveries were pre-leased. Going forward, new construction starts will continue to taper as the capital markets settle towards a new equilibrium. Under construction figures are down from a Q4 2022 historical high of 80M SF to 63.5M SF reported in Q2 2023. Mid-year leasing activity remained strong at over 12.5M SF reported in Q2 and 29.5M SF for YTD figures. The robust leasing activity figures will translate to additional net positive absorption.

Rental rates are continuing to rise especially in the “Infill” submarkets. Furthermore, with less than 30% of new construction located within the “Infill” submarkets, we expect the substantial rent growth within the city’s core to continue. Preleasing activity is still prevalent but concerns over delivery dates have increased due to the continued material shortages and delays. Such delays have encouraged many landlords to increase the amount of spec work including office, lights and levelers in a race to provide “operational” space for incoming prospective tenants.

As we enter the second half of 2023, we expect the overall industrial market to remain relatively stable. E-commerce, logistics, and distribution companies continue to be among the key drivers of absorption, as the region’s strategic location and excellent transportation infrastructure attract businesses. We also expect DFW to outperform other parts of the country as it continues to be the biggest benefactor of large-scale relocation efforts and population growth.

Market Observations

• With the recent changes in the debt markets, the development wave has slowed down. Continued tenant demand has helped counter this by giving developers confidence in increased rental rates.

• Fundamentals of what makes DFW appealing are unchanged. Population growth, lower cost of living, pro-business environment, central location and connectivity will continue to be attractive to businesses and capital markets.

• Continued tenant demand is evident as shown by 51 consecutive quarters of positive net absorption.

• New frontier markets are benefiting from established submarkets reaching full capacity in certain size ranges.