South Dallas is Expanding

In the aftermath of the pandemic, the South Dallas industrial real estate market has experienced significant shifts, presenting both challenges and opportunities for investors and businesses.

Market Overview:

• Vacancy Rates: As of the third quarter of 2024, South Dallas reported a vacancy rate of 14.4%, surpassing the overall Dallas-Fort Worth (DFW) metro average.  

• Rental Rates: The submarket’s average asking rent stood at $5.04 per square foot, the lowest in the Metroplex, making it an attractive option for cost-conscious tenants.  

Development Trends:

South Dallas was among the last areas in the Metroplex to undergo large-scale industrial development. However, a surge in construction led to an oversupply, outpacing demand that had diminished post-pandemic. This imbalance resulted in elevated vacancy rates and downward pressure on rents.  

Absorption and Leasing Activity:

Despite the challenges, there are positive signs. In the third quarter of 2024, South Dallas achieved a net absorption of over 2.5 million square feet, contributing to nearly 6 million square feet absorbed year-to-date. This trend indicates that businesses are capitalizing on the submarket’s affordability and availability.  

Notably, Post Consumer Brands secured a 1.1 million-square-foot lease in Wilmer for a new distribution center in early 2024, highlighting the submarket’s appeal to large-scale operators.  

Opportunities for Investors and Tenants:

The current market conditions in South Dallas present unique opportunities:

• Cost Advantages: Tenants can benefit from rental rates that are $1.50 to $2.00 lower per square foot compared to other DFW submarkets, offering significant cost savings.  

• Availability of Space: The higher vacancy rates mean a broader selection of spaces is available, allowing tenants to negotiate favorable terms. 

Future Outlook:

Industry experts anticipate that as the existing inventory is absorbed and new construction slows, the South Dallas industrial market will stabilize. This adjustment period is expected to align supply with demand, potentially leading to increased rental rates and reduced vacancies in the coming years.

In summary, while South Dallas currently faces challenges due to oversupply, these conditions have created a landscape ripe for strategic investments and leasing opportunities. Businesses seeking industrial space may find the submarket’s affordability and availability particularly advantageous during this period of market correction.