• Over 32 million s.f. delivered in 2020 to support continued demand, setting a new annual record.
• With 22.1 million s.f. absorbed in 2020, an unprecedented demand for space continues. Since 2014, the DFW market has averaged over 20 million s.f. annual net absorption.
• To support continued demand, 32.7 million s.f. delivered in 2020, setting a new annual record. Activity continues with over 20 million s.f. under construction for the 19th consecutive quarter.
• Demand is expected to continue into 2021 as leases signed for 5.1 million s.f are scheduled to commence in next quarter.
The Dallas-Fort Worth (DFW) industrial market continued its run of record-setting growth through the end of 2020. Momentum in the current cycle has been sustained through the ongoing COVID-19 pandemic as the need for industrial space has increased. The DFW market has seen steady demand since 2014, averaging over 20 million s.f. of net absorption annually.
Lead time on recent deliveries for lease commencements, and remaining speculative space, has contributed to an increase in vacancy by 2.1% since 2016. However, vacancy remains lower than the long-term average of 8.9% dating back to 2000. To support existing and anticipated demand, 32.7 million s.f. delivered in 2020, setting an annual record for new space. Speculative projects accounted for 72.2% of deliveries, with 33.1% (7.8 million s.f.) already leased by year-end. Both speculative and build to suit properties delivered in the previous five years had an 8% vacancy rate as of Q4, just below the market average.
Currently, 47% of space under construction in the market is located within the outlying North Fort Worth and South Dallas submarkets. With both existing and new tenants competing over space, and little sublet space available at a discount, rent growth has increased since the start of the current cycle. Direct asking rents have increased by 6.6% since Q4 2019, and 9.8% since the first half of 2016. Fewer greenfield sites remain in the interior DFW Airport and South Stemmons submarkets, where higher development costs will maintain asking rents above the market average.
Current demand is expected to continue into the start of 2021, as 5.1 million s.f. of previously-signed leases are scheduled to commence next quarter. These future move-ins, in addition to outstanding requirements with intended timing in 2021, will lower vacancy rates in the near-term and continue to put upward pressure on rents.
As it deals with the effects of COVID-19 and resulting government restrictions on workplaces and business in general, the Dallas-Fort Worth (DFW) economy continued its recovery in Q4 2020. While the unemployment rate remains high relative to last year, the area added 47,949 jobs this quarter compared to Q3 2020, bringing the region close to its pre-pandemic levels.
The region’s population increased by 121,603 people year-over-year (YOY), and by 29,070 in Q4 alone. As of December 2020, the population reached a new high of over 7.8 million residents. According to Moody’s Analytics, the industrial sector grew by 25,463 jobs (2.4%) from the previous quarter. Industrial roles are described as positions that fall within manufacturing and trade, transportation, and utilities. The leading indicator of industrial demand is driven by trade, transportation, and utilities sector jobs, which accounted for a majority of industrial roles at 74% (809,144 jobs). The region’s industrial employment totaled 1,092,685 jobs as of quarter end.
The DFW industrial market continued strong growth through the end of the year. The quarter closed with a 30-basis point (bps) increase in vacancy to 7.2% compared to the prior quarter. The increase in vacancy resulted from net absorption lagging completions by 3.1 million square feet (msf) in fourth quarter. Developers added 9.0 msf of new product to the market and a total of 31.9 msf was delivered this year.
Alliance and Mesquite submarkets saw the highest amount of completions, with 2.6 msf and 1.7 msf completed in fourth quarter. Far North/I-35 and DFW Airport followed closely with 1.2 msf and 1.1 msf, respectively. Build-to-suit projects accounted for 14% of new project completions. Construction activity has fallen slightly below the historical levels we saw in 2019, with 26.5 msf under construction. Despite the slight drop in construction, Dallas-Fort Worth remains well above the national average. Speculative sites accounted for the majority of product under construction at 19.9 msf (75%) with 32% of all under construction projects currently pre-leased.
Strong demand for product in the DFW market will continue to keep vacancy rates relatively stable. Dallas-Fort Worth’s central location and extensive transportation and distribution network has continued to make it a vital logistics hub. Overall new leasing activity (excluding renewals) totaled 9.3 msf with the highest activity in DFW Airport at 1.6 msf, followed by Great Southwest and South Dallas at 1.2 msf and 1.2 msf, respectively. The DFW industrial market continued its trajectory of positive occupancy growth and absorbed 5.9 msf in fourth quarter 2020.
The highest cumulative increase in occupancy was in the Alliance submarket at 2.4 msf followed by South Dallas and DFW Airport at 1.3 msf and 895,947 square feet (sf), respectively. Top new leases signed this quarter were Georgia Pacific (999,190 sf) and UPS (695,519 sf). The largest move-ins this quarter were Glazer’s Beverage (1.1 msf) and Ariat (1.1 msf). All large move-ins and top new leases signed were in warehouse/distribution assets. Renewals increased 8.1% quarter-over-quarter (QOQ) and accounted for 26% of combined renewal and leasing activity.
Asking rental rates saw an uptick in the DFW industrial market. The year concluded with an overall average asking rate of $5.22 per square foot (psf) in Q4, marking a 2.2% increase from year-end 2019 ($5.11 psf). The Richardson/Plano submarket led with the highest overall average asking rate in DFW with rents at $10.59 psf.
North Dallas/Metropolitan and East Dallas submarkets followed closely at $8.33 psf and $7.96 psf, respectively. Warehouse/Distribution properties saw a slight increase in rental rates by 6.9% from the previous quarter. Warehouse/Distribution assets reported average rental rate of $4.68 psf with the Brookhollow/Trinity submarket with the highest asking rental rate at $6.78 psf.
• Dallas-Fort Worth’s central location and extensive transportation and distribution network will continue to make it a vital logistics hub.
• Renewals will remain attractive to tenants in the near term.
• Leasing activity will continue to keep up with new supply, keeping vacancy below historical levels.
• Rental rates will remain stable across Dallas-Fort Worth due to demand and arrival of new Class A product.