Dallas’ industrial real estate market is having a standout year, breaking records and showing why it’s a key player on the national stage. With $3.8 billion in year-to-date (YTD) sales as of October 2024, the Dallas-Fort Worth metroplex has surged past last year’s performance by $1.1 billion. Here’s what’s driving the momentum and the challenges that come with it.

Big Wins in Sales

Dallas is at the top of its game, leading the nation in industrial investment volume. With $3.8 billion in sales so far this year, it’s outshining other major markets like the Bay Area ($3.0 billion), Chicago ($2.6 billion), and Houston ($2.6 billion). Even with this high volume, Dallas properties are trading at an average price of $113 per square foot (PSF), which is slightly below the national average of $129 PSF.

A noteworthy transaction this year was Stonepeak’s purchase of Alliance Gateway 61 and 53. These rail-served Fort Worth assets, totaling 1.1 million square feet, were acquired from institutional investors advised by J.P. Morgan Asset Management. Deals like this underscore the region’s importance as a logistics powerhouse.

The Vacancy Challenge

While sales are soaring, there’s a growing challenge: an increase in vacant spaces. As of October 2024, the industrial vacancy rate in Dallas has jumped to 8.3%, more than double last year’s rate of 4.1% and higher than the national average of 7.2%.

What’s driving this trend? A flood of new industrial supply. Dallas currently has 16.5 million square feet of industrial space under construction, making it the second-largest development pipeline in the country, trailing only Phoenix. This rapid expansion is a testament to the market’s strength but has also led to a temporary oversupply.

A Pipeline Packed with Potential

Dallas’ development pipeline is bustling with activity, with 16.5 million square feet of industrial space under construction. Notable projects include:

• Alliance Westport 24: A 1.1 million-square-foot speculative facility in Fort Worth by Hillwood, expected to be completed by late 2025.
• Plano Midpoint: Foundry Commercial’s ambitious project converting a 1980s office building into two industrial facilities totaling 300,000 square feet, slated for early 2026.

While Phoenix leads with 28.1 million square feet under construction, Dallas still surpasses other metros like Philadelphia (12.7 million square feet) and Kansas City (11.7 million square feet).

Demand Holds Strong Despite Vacancies

Even with rising vacancies, demand remains solid. Dallas has added 27.4 million square feet of industrial space YTD, representing 2.8% of the market’s total inventory. This surge hasn’t gone unnoticed by big players. For instance, Google recently signed a lease for 1.1 million square feet at Majestic Realty’s Creek Business Park in North Fort Worth as part of a $1 billion investment in Texas to expand its cloud and data infrastructure.

Looking Ahead: Opportunities and Challenges

While Dallas’ industrial market continues to shine, rising vacancies pose challenges for landlords. Average rents in the metro grew by 8.1% year-over-year to $6.17 PSF, still trailing behind pricier markets like Orange County ($15.95) and Los Angeles ($15.05).

Despite these hurdles, the outlook remains positive. With a steady stream of new developments, strong investor interest, and a strategic location, Dallas is well-positioned to remain a leader in industrial real estate. However, navigating the balance between supply and demand will be critical as the market evolves.

Lower Deal Volume and Shifting Buyer Profiles Suggest Off-Market Deals Driving Activity

The industrial real estate market in Dallas-Fort Worth (DFW) saw a notable slowdown in 2024, with property turnover declining significantly. This trend has brought changes to the way investors navigate the market, as fewer deals and shifting buyer profiles suggest off-market activity is playing a bigger role than ever before.

Periods of low transaction activity in industrial properties often create a foggy picture for capital markets. It’s as if only small windows allow glimpses of what’s happening behind the scenes. For investors in DFW—or any major market in a non-disclosure state—this opacity is a familiar challenge. To adapt, they’ve turned to creative ways to benchmark market activity.

Tracking Turnover to Gauge Market Health

When direct pricing data is hard to come by, analyzing inventory turnover becomes a reliable alternative. Measuring how much industrial space is changing hands provides a way to determine whether deals have truly dried up or if they’re simply happening out of public view.

By smoothing out the data, we can filter out the noise caused by quarterly fluctuations, such as peaks from large portfolio sales. A 12-month average reveals that industrial property turnover in DFW hit its high point in mid-2022, with 2.5% of the market’s inventory being transacted. This peak coincided with a surge in transaction values as deals flourished across North Texas.

Fast forward to 2024, and the landscape looks very different. Transaction volumes and values have dropped significantly, and turnover has followed suit, falling to just 1.2%. This figure is less than half of the 2022 peak and well below the pre-pandemic historic norm of around 2%.

What’s Behind the Decline?

The drop in visible market activity can be attributed to several factors. For one, higher borrowing costs have created headwinds for deals, particularly for institutional players who previously dominated the market. In their place, private capital—including private equity fund managers, individual investors, and family offices—has stepped in to fill the gap.

These more agile, liquidity-rich buyers are well-positioned to negotiate favorable pricing and close deals that might otherwise stall. Many of these transactions are happening off-market, further obscuring the true level of market activity. For example, sale-leaseback agreements have become an increasingly popular strategy as companies look for creative ways to unlock liquidity while retaining operational control of their properties.

A Look Ahead

The decline in industrial property turnover in DFW reflects broader market adjustments, but it’s not a signal of inactivity—rather, it’s a shift in how deals are being made. Off-market activity, driven by private capital and alternative financing strategies, is reshaping the market landscape.

As the market adapts to these new dynamics, investors who stay attuned to these changes will be better equipped to uncover opportunities and navigate the challenges ahead. While the fog may make it harder to see what’s on the horizon, one thing is clear: the DFW industrial market is still very much alive, just evolving in ways that reward creativity and resourcefulness.

The warehouse building boom continues but net leasing is beginning to slow.

The construction of industrial buildings in North Texas is not slowing down.

However, there are indications that the demand for warehouse space is declining.

Cushman & Wakefield, a commercial property firm, reported that almost 75 million square feet of warehouse and distribution space was under construction in Dallas-Fort Worth at the end of the first quarter.

The majority of the construction activity was in southern Dallas County (16.9 million square feet), the Alliance area north of Fort Worth (15 million square feet), and eastern Dallas County (7.8 million square feet).

More than 14 million square feet of warehouse projects were finished in the area in the first three months of 2023.

That was much more than the net leasing of 4.6 million square feet.

David Eseke, Cushman & Wakefield executive managing director, said in a statement that “Absorption in the first quarter was closer to those of first quarter 2019 than the record-setting figures in 2021 and 2022.”

He said that the demand for large-scale space of 300,000 square feet or more is slowing down. “We’d expect vacancy to ramp up,” he said.

Only about 5.5% of D-FW warehouse space was vacant at the end of March.

The biggest warehouse leases in the area in the first quarter were by DSV Global Transport and Logistics (1,003,000 square feet), Hayes Co. (904,495 square feet), and Blue Triton (603,378 square feet).

Southern Dallas County, with 2.3 million square feet of net leasing, and the Alliance area, with 1.8 million square feet, saw the most industrial demand so far in 2023.

Construction and development delays are adding to lead times for some warehouse tenants, Eseke said.

“A trend we continue to see is the lengthening of the occupancy process,” he said. “Delays in permitting and some critical construction items are preventing tenants from moving in as fast as they’d like to.”