Oversupplied South Dallas Area Could Offer Industrial Treasures For Bargain Hunters

With the holiday season in the rearview mirror, shoppers are seeing fewer and fewer deals — unless they’re in the market for industrial space in the South Dallas area, where developers rushed to build in the wake of the pandemic only to see demand fall off sharply.

While Dallas-Fort Worth was named the No. 1 metro in the nation for distribution and warehousing by CommercialSearch in November 2024, the South Dallas submarket is facing a supply glut.

Overbuilding has helped lead the DFW region to the highest industrial vacancy rate in the south, continuing an upward trend that began in Q2 as the market moved into oversupply. Vacancy rose 80 basis points month-over-month, according to CommercialEdge's December 2024 Industrial Market Report.

South Dallas’ vacancy rate of 14.4% in Q3 outpaced the metro as a whole, per Avison Young's latest industrial market snapshot. The submarket also had the lowest asking rents per SF in the Metroplex at $5.04.

South Dallas was the last area of the Metroplex to see large-scale development of industrial space. Meanwhile, demand for that product has waned since the pandemic, according to Avison Young principal Buddy Turner.

“It dried up after [developers] went down there and built so many square feet,” Turner said. “There's still leasing activity, it's just slowed way down.”

But the submarket's woes also spell opportunity, and some are jumping on it.

While most of the DFW submarkets saw negative absorption rates in Q3, South Dallas surpassed 2.5M SF in the quarter, absorbing nearly 6M SF for the year through that point.

That's a positive sign for the future, Turner said. Due to the availability of industrial space south of Downtown Dallas, it is becoming a cheaper alternative for companies in need of warehouses and similar facilities.

“You can go down there and be $1.50 or $2 cheaper than some of the other areas [of the Metroplex],” Turner said of South Dallas rents.

Post Consumer Brands, the manufacturer of breakfast cereals such as Fruity Pebbles and Grape-Nuts, took advantage of the lower rates in January of last year when it signed a 1.1M SF lease in Wilmer for a new distribution center. That deal was an exception in the area, as Turner said most leases signed are for under 250K SF. 

“We recently did a renewal and realized that South Dallas and East Dallas are starting to lower their rental rates a little bit to try to attract tenants down there,” Turner said.

The city of Lancaster saw continued industrial development throughout the second half of 2024, with meal delivery service FreshRealm opening a manufacturing facility and McKinley Packaging beginning operations at its corrugated box manufacturing plant. The city located just west of Wilmer also anticipates news of another manufacturer moving to Lancaster could come in the next few months, Lancaster Director of Economic Development Shane Shepard said. 

“While demand for warehousing has softened recently, Lancaster is well positioned to benefit from its location at the confluence of three interstate highways and the Union Pacific Intermodal Terminal,” Shepard said via email.

The outlook for 2025 is positive for the South Dallas area thanks to steady absorption and potentially beneficial change after Donald Trump’s presidential victory, Turner said.

But he expects it’ll be sometime in 2026 before the area catches up to its current oversupply. 

“They've got some buildings still being developed,” Turner said. “I don't think you're going to see any new starts until some of that gets leased.”

The first 100 days of the new Trump administration should provide clarity on economic policies like tariffs and trade agreements that will directly impact industrial demand, Shepard said.

As a logistics hub for much of the U.S., the Metroplex is well-positioned for the continued need of the industrial space it has, and Shepard believes Lancaster and the rest of the South Dallas submarket will benefit from what is on the ground and in the pipeline.

“As long as developers focus on delivering the right product — high-quality industrial spaces designed for modern needs — these properties will continue to attract tenants,” he said.