DFW Industrial Vacancy Rate Remains Elevated Even As New Construction Nose-Dives
The nearly 20M SF of industrial space in development in Dallas-Fort Worth is less than half what it was at this time last year, but the Metroplex continues to see vacancy rates that surpass 2023 and sit above the region’s long-term average.
The region’s vacancy rate hit 11% for the third quarter, continuing an upward trend that began in Q2 as the market moved into oversupply, according to Avison Young's Q3 industrial market snapshot.
At the same time, new construction slowed, with 19.5M SF underway at 99 properties in Q3. This year, about 31M SF of new industrial product has delivered or is under construction in the region. More than 65M SF came on the market last year.
Higher vacancy rates follow a burst of industrial construction that accelerated in 2022.
Among the 90M SF that came online between 2019 and 2021, vacancy was under 4%, well below the Metroplex’s regional historic average for newer assets. The projects that delivered during the last two years are the culprits for the higher rate, with an average vacancy rate of 32% for the most recent quarter.
Avison Young officials said leasing was above average for the quarter, and they expect vacancy to come down over the next year as demand catches up with all the new product.
“While market vacancy is now elevated, we expect it to move notably lower through 2025 as our slower development pipeline lets this new product lease up,” Avison Young Managing Director Greg Langston said in a statement.
The metro’s long-term vacancy average is 8.3%.
In better news, although total net absorption in DFW has fallen each year since hitting a 2021 peak, the 17.9M SF absorbed through Q3 was well above the metro's long-term average of 13M SF a year.
But rent growth came to an end, ringing in at a flat $7.85 per SF. DFW's industrial sector had seen consistently rising rents over the past few years, thanks to strong demand and tight supply.
Affordability has been a key reason for the region's continued success as a U.S. logistics hub, Avison Young said.
“Our region’s central U.S. location and multimodal accessibility for road, rail, and air are key to this reputation, as is our affordability compared to other distribution markets where average rents can easily exceed $12.00 to $16.00 per square foot,” Langston wrote.
A report from CommercialSearch last month even placed DFW as the No. 1 metro in the nation for distribution and warehousing.
Real estate investment firm Bixby Capital Management kicked off Q4 with the acquisition of three Class-A industrial buildings built in December 2023. The buildings' 42-acre site added nearly 534K SF to the California-based firm’s industrial portfolio in DFW.
