Dallas-Fort Worth warehouse market hits rocky road
The massive build-up of warehousing in the Dallas-Fort Worth area over the past several years is showing signs of succumbing to growing recessionary pressures, with new construction slowing, vacancies of existing facilities rising, and rents tumbling.
While new warehouse construction is expected to add a record 22.7 million square feet this year, up 36 percent over 2007, a recent analysis of the Dallas-Fort Worth area's finds that the influx of new space is coming just as firms are cutting expansions and pulling back on leasing or buying new warehouse space.
The area's warehouse vacancy rate of 11.4 percent through the end of the third quarter is expected to jump to 12.5 percent as of this month, the highest level since Boston-based analyst firm Property & Portfolio Research began tracking vacancy data in 1982.
PPR is predicting an even grimmer 2009 for the Dallas-Fort Worth warehouse market. PPR expects warehouse net leasing to fall by half next year, with slowing demand, an over supply of space, and too little capital leading to slower new development.
In a sign of the times, industrial property giant ProLogis has halted all new development in the area, including one project of more than 500,000 square feet, to preserve capital. The firm's portfolio in the Dallas-Fort Worth area includes more than 23 million square feet in 139 buildings either owned, managed or under development. While ProLogis reported leasing out more than 130,000 square feet of warehouse space in the area this month, it is currently reporting vacancies in 31 of its portfolio properties throughout the area.
In addition to development slowing, deals are taking much longer to finalize and rents have tumbled. PPR reported that average warehouse rents in the Dallas-Fort Worth area have fallen 8 percent, to $3.44 per square foot, over the past year. The firm predicts rents will hit a low of $3.30 a square foot by late 2009, before rebounding in 2010.
And while the area may end 2009 with some very high vacancy rates, PPR expects the area to post some of the best net leasing numbers for all national distribution hubs.