Welcome to summer 2024, more than four years post-Covid. DFW’s industrial real estate market, once buoyed by hypergrowth from e-commerce giants, mass migration from coastal markets and demand outpacing supply, has undergone a significant transformation since its 2020-2022 peak. Companies that overcommitted during those boom years are now inundating the market with sublease space, marking a pivotal shift in DFW’s industrial real estate landscape.
A Surplus of Industrial Sublease Space
In 2024, DFW is still grappling with a record amount of industrial space available for sublease. The 2023 peak of over 12.9 million square feet available for sublease in the region represented a nearly 6x increase from the 2021 low of 2.2 million square feet. This influx of sublease space offers opportunities for those seeking discounted, fully-equipped industrial facilities. However, it also signals a dramatic shift in the market dynamics.
The surge in sublease supply, which began in 2023, is just now leveling off as astute tenants and their advisors are swiftly capitalizing on these opportunities. Developers, who anticipated continued growth and overbuilt accordingly, now find themselves with empty buildings as demand cools. They have unexpectedly discovered that their primary competition is other tenants rather than other landlords.
DFW’s Industrial Availability Rate
With the influx of sublease space and overbuilding by developers, DFW’s industrial real estate market has seen a significant increase in availability rates as compared to 2021’s peak. This substantial uptick in availability rates over the last three years has shifted the market from the landlord-favorable environment that characterized the 2020-2022 pandemic years.
This is partly due to the significant amount of new construction coming online, with approximately 15 million square feet delivered in Q1 2024 alone, and only about a third of this space being pre-leased. Since the beginning of last year, over 94 million square feet of new industrial space has been added to the Dallas-Fort Worth market. The softness is most acute for larger buildings, as Dallas metro tenants today have almost 250 buildings to choose from between 100,000-200,000 square feet, and 150 options from 200,000-400,000 square feet. This imbalance has put pressure on property owners facing expiring leases. Although construction starts are declining, it will take several years for the market to return to more typical availability levels seen before the pandemic.
Navigating the New Industrial Landscape
Despite the increase in availability, asking rents for industrial space in DFW have remained relatively stable. This disconnect between rising availability and stable rents can be attributed to landlords and their brokers manipulating price levels, thereby obscuring the true state of the market. However, current market conditions offer a new opportunity for tenants to challenge the status quo, provided they are armed with the facts and represented by advocates who prioritize tenants’ interests and are not representing landlords at the same time.
Given the dramatic changes in DFW’s industrial real estate market, working with a tenant advocate who understands the current environment and can navigate the market complexities is crucial. Traditional brokerage firms, which represent both landlords and tenants, do not serve tenants’ best interests, as landlords are the dominant customer to defend in this David and Goliath industry.
In summary, the DFW industrial real estate market is experiencing significant challenges, particularly in submarkets like South Dallas, Alliance, Great Southwest/Arlington, East Dallas/Mesquite and Northwest Dallas. Overbuilding, economic adjustments and shifting demand patterns have led to high vacancy rates and a glut of sublease space. While these conditions pose difficulties for landlords and developers, they simultaneously present opportunities for tenants to secure space at more favorable terms.
Marketing statistics provided by CoStar.
