By: Walter Bialas
Now that the first quarter industrial numbers are compiled and published, we’ve had an opportunity to take a look at how DFW is stacking up. Overall, vacancy is still near the low point and rent pressures continue.
The one number that does jump out is our construction pipeline. At 24 million SF, we are at the top of what we have seen historically. We can counter the high level of construction with arguments like, “our inventory base is larger, so construction activity would naturally go up”. In our view, that is really not the point. In fact, looking at our long-term development patterns, at 4.5%, our percent of inventory that is under construction is still quite high – that number has typically averaged 3.2% during past expansion cycles. So – is that a cause for concern?
We don’t think so… In fact, when you chart out the history, something else jumps out… As you can see below, even during the long down period of 2002 to 2005 (the telecom / tech bust) we continued to develop space. Granted, it was modest in scale, but still averaged 4 to 5 million SF annually. In this last downturn, our development pipeline shut down almost completely. This created a period of pent-up demand, and we are still playing catch-up. So – no, the current development pipeline does not seem over-sized at this time.
The issue here is continuing demand. As we sit here in early 2016, demand seems solid with good first quarter numbers and a pipeline of tenants in the market. Unlike other parts of Texas or energy states, we have seen no slowing in demand for industrial space. As we’ve talked, this is due to our diverse economy and great logistics location. The challenge is that we need to keep development under control so we do not vastly overshoot demand. We expect development to continue as owners try to capture these opportunities – which will likely result in a gradual rise in vacancy – probably back to our longer-term average of 8.0% over the next several quarters. For now, though, the market is in very good shape. And, yes, we will continue to monitor the market to keep abreast of changes in these dynamics.