DFW’s industrial market – going through a rapid evolution

While DFW has been a preferred logistics hub for a very long time due to the combination of its central US location and strong multimodal access options, it has been going through a recent evolution. At the most basic level, DFW’s industrial vacancy looks to have been spiking, up from a consistent 6% to 7% over the last decade to 11% as of Q2 2024. This is well above the overall market’s 8.3% long-term average vacancy. As we highlighted in our quarterly report, this vacancy increase is largely due to new deliveries that were developed as spec product and are still in initial lease-up.

As we delve deeper into this construction trend, DFW’s rapid evolution as a logistics hub became clear. Over the region’s long-term past, typically 11–12 msf of industrial product has come online annually. While development activity was ramping up over those 50+ years, even the period from 2000 to 2017 only saw 12–14 msf developed on average annually. From 2016 to 2018, however, DFW’s annual construction quickly began to ramp up as 23–24 msf hit the market each year. Since then, activity has continued to move even higher.

In the early 2020s, 33 msf came online annually – this is almost 2½ times 2011–2017’s average annual deliveries. This also does not reflect the 67 msf spike in 2023 and an additional 26 msf in the first half of 2024. We do not see this scale of new development as unfounded. Rather, it is merely DFW evolving into a stronger and more dominant logistics hub.

Looking at vacancy across all age-tiers, inventory continues to remain in high demand, with all vintages below the DFW’s long-term average, except for the newest deliveries still in lease up. Higher development costs and elevated interest rates are also slowing the development pipeline across the US as well as in DFW. This pause should allow the newest assets to lease up and bring our vacancy back down, closer to its long-term average over the next several quarters.