ConradsNotes On INFIELD vs. OUTFIELD and the DFW INDUSTRIAL SECTOR (3Q2023)

“Be curious always!? For Knowledge will not acquire you: you must acquire it.” – Sudie Back

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By Conrad Madsen, SIOR ?Co-Founder & Partner Paladin Partners?

The following is an overview of my breakdown of the recent 3rd Quarter 2023 market statistics for the industrial real estate sector in DFW. ?The below statistics continue to support my thesis that “Infield” properties will continue to thrive due to low availability with limited new construction/competition coming online, which will continue the trend of base rental rate appreciation. ?While on the other hand, the “Outfield” properties will have slower rent growth, due to the massive amount of competition and some ownerships focusing less on base rental rate and more on occupancy of their assets.?

Headlines:

• Vacancies continue to rise, as new product deliveries continue to hit the market, especially as leasing velocity slows.

• Vacancy rate climbs to 6.5% market wide.

• Net absorption fell DRASTICALLY to just over 4m SF last quarter.?? Was over 10m SF YoY.? (Very bad sign, but hopefully just a slow summer and we see this tick back up over 4Q)

• Under construction numbers continue to drop as the capital markets freeze put halt on new developments 18 months ago.

• Over 30 million SF could be vacant in South Dallas/67 corridor over the next 6 months as the last funded/financed projects are delivered.
• At current net absorption rates in South Dallas, this could take 3-4 years for this product to be absorbed.?? Longer if velocity slows to 3Q numbers.?
• Over 15 million SF could be vacant in North FW/Alliance over the next 6 months as deliveries are completed.
• Forney/Terrell will have a 50%+ vacancy rate in the next 4-6 months as an additional 5m SF of new product is delivered to this new submarket.
• Denton/NW Dallas could hit over a 30% vacancy rate over the next 6 months as over 4m SF deliveries continue, currently over 15%.
• In the next 12 months, I expect over 55m SF to be vacant DFW wide.?? This number could exceed 60m SF if recession deepens and leasing velocity slows.???
• Subleases have flooded the market over the last month and now total over 11m SF, the highest in over a decade.? This will slow rate growth in the OUTFIELD and possibly the INFIELD, as more inexpensive options become available for Tenants. ?
• Industrial lease rates however, continue to climb due to low vacancy rates, especially in the INFIELD.?? Rates climbed over +/- 20% YoY
• Lease rates are now firmly in the double digits around DFW Airport/Valwood, etc.? Annual escalations are now pushing 4.5% to 5% in the INFIELD.
• Expect a softening in the OUTFIELD over the next 12 months as deliveries pile up and developers get aggressive to win deals as leasing velocity slows and the recession continues to deepen.
• SURVIVE TILL 25’

Now on to the numbers…..?

“Infield vs. Outfield” Industrial Statistics in DFW (3Q2023) *:

Overall DFW Vacancy Rate: 6.5%, up from 6.12% the previous quarter and 5.5% in 1Q23’.

Infield Vacancy Rate: 4.01%, up from 3.74% last quarter and 3.53% in 1Q23’.

Outfield Vacancy Rate: 11.68%, up from 11.15% last quarter and 9.74% in 1Q23’.

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SUBMARKETS WITH HIGHEST VACANCY RATES:

?South Dallas Vacancy Rate: 15.53%, up from 14.12% last quarter and 11.7% in 1Q23’.

?East Dallas Vacancy Rate: 11.5%, down from 12.6% last quarter and 13.4% in 1Q23’.

?Forney Vacancy Rate: 15.3% down from 20.81% last quarter

?Denton Vacancy Rate: 15.19% up from 15.04% last quarter

New Construction:

Total Under Construction SF: +/- 46.9 million SF, down from 51.6 million SF last quarter and 62.9m SF in 1Q23’.

Total Under Construction SF Outfield: (S. Dallas, N. FW, East Dallas): +/- 29.8 million SF, down from 34.8m SF last quarter and 44.1m SF in 1Q23’.

Total Under Construction SF Infield: +/- 17.1 million SF, up from 16.8m SF last quarter and 18.7m SF in 1Q23’.

New Construction as % of Total Under Construction

INFIELD: 36.38% UP from 32.58% last quarter.

OUTFIELD: 63.62 % DOWN from 67.42% last quarter.

*Independent Research. Utilized total inventory of +/- 960 million SF for DFW.

About the Author:

Conrad’s mantra is “Make an Impact”. Over his career, he has been very blessed to advise some of the largest corporations and institutions on earth. His true passion is to use Paladin as the vehicle to impact others’ lives and the communities around us through the Paladin Partners Foundation and their industry-first “Give-Back” business model.

Recently, he was identified as one of the Top 5 Commercial Real Estate Influencers in the world and was also inducted as a Texas Icon in Commercial Real Estate by REDNEWS. He is a regular speaker at industry and business events, podcasts, and is routinely quoted by the media in their video, digital, and print publications.

?Consistently recognized by the Dallas Business Journal and D CEO Magazine as one of the “Heavy Hitters/Power Brokers” in commercial real estate, Conrad specializes in industrial tenant representation, development & project leasing, land and building sales, investment property sales, and corporate services consulting for clients, where he has transacted over 60 million SF in over 150 cities across the globe.

Conrad walked on at Texas Tech University under legendary coach Spike Dykes before graduating with a Bachelor of Science from Texas State University. Conrad is extremely involved with the Paladin Partners Foundation and their annual Give Back Gala, which supports Team Luke Hope for Minds (where he is a Board Member) and other charities that enrich the homeless, less fortunate, cancer research and the true heroes of our country, the United States Veteran.

He is very active on LinkedIn (please connect with him) and a huge follower of college football and basketball. When he’s not in the office, you can most likely find him in the great outdoors or hunting rare whiskeys and collectible wines from Bordeaux, Napa Valley, and Pouilly Fume. Be on the lookout for his upcoming Podcast.?????????

If you would like to discuss your current lease situation, your upcoming future real estate decisions/needs, onshoring or nearshoring your manufacturing, your vacancies or sublease opportunities, how you want to streamline your real estate processes across the globe or just breakdown Football, Basketball, Wine, Bourbon, Golf or the Great Outdoors please feel free to reach out to Conrad anytime at [email protected] or follow him on LinkedIn at https://www.dhirubhai.net/in/conradmadsen/