Q4 2022 Industrial Real Estate Report: Dallas, TX

The Dallas industrial market had an extremely positive quarter characterized by substantial positive absorptions and construction deliveries. Despite vacancy rates rising slightly, leasing activity was strong, with several notable tenants filling space. 

Additionally, Dallas’ job market made record gains this past quarter, with particular emphasis on industrial sectors, such as transportation, utilities, and trade. Overall, Dallas’s industrial market is in an excellent position heading into 2023. 

General Area Overview & Demographics

Dallas is the third largest city in Texas and has a population of 1.33 million as of 2023

The median age in Dallas is 32, and the median household income is $54,747. In conjunction with San Antonio and Houston, Dallas comprises the largest metropolitan area in the American South. 

Dallas has a humid subtropical climate with dry, hot summers and short, mild winters. Day temperatures during the summer easily reach over 90 degrees F, and the city receives very little snowfall. Dallas is also positioned near the heart of Tornado Alley. 

Dallas has an extremely strong economy and has one of the nation’s highest concentrations of corporate headquarters. It is home to several Fortune 500 companies, such as CBRE, Tenet Healthcare, Southwest Airlines, and Jacobs Engineering. Dallas has more shopping centers per capita than any other city and is home to the second-largest shopping center in the country, the Highland Park Village. 

Summary of Dallas Industrial Real Estate Performance in Q4 2022

The Dallas industrial space market had a strong quarter with 8.3 million square feet of positive absorption. Positive absorption was higher in Q4 2022 than in Q3 2022 but lower than positive gains in Q1 and Q2 2022. 

Although general market activity was strong, vacancies rose by an additional 50 basis points this quarter to 5.3%. Vacancy increases were largely a result of project delivery outpacing consumer demand. The majority of completed projects this quarter were vacant, indicating a bullish attitude among developers who are confident they can lease their space. 

The submarkets with the lowest vacancy rates were Garland, Valwood, and Radbird at 1.6%, 1.7%, and 2.8%, respectively, while the individual submarket with the highest vacancy rate was Central Dallas at 16.3%. 

What Are Industrial Rents Like in Dallas?

Industrial asking rates in Dallas rose 3.4% in Q4 2022 to an average of $6.76 per square foot from $6.52 per square foot in Q3 2022—a record high. The submarkets with the highest average asking rates were Plano, Ellis County, North Dallas, and Walnut Hill at $12.52, $11.68, $11.02, and $10.72, respectively. 

The submarkets that posted the highest rental growth were Alliance and Great Southwest, which posted annual rental growth of 53.0% and 26.3%, respectively. Between warehouse/distribution and manufacturing, average asking rates were $6.16 and $6.02 per square foot, respectively. 

Purchase & Leasing Activity

Leasing activity was very strong this quarter, with total leasing amounts at 12.1 million square feet. As of Q4, Dallas has leased over 46.4 million square feet of industrial space, 5% below record activity in 2021. The submarkets with the highest leasing activity were South Dallas, Alliance, and Mesquite at 2.5 million, 2.1 million, and 1.5 million square feet. 

The high leasing activity this quarter was driven by increased demand due to Dallas’s position as a hub for transportation and distribution. The high demand and leasing activity will drive future construction efforts into 2023. 

Notable Industrial Real Estate Deals in Dallas in Q4 2022

Dallas had very strong leasing activity this quarter. Some of the most notable transactions in Q4 2022 were:

    • Careismatic’s 1.01 million square foot least at I-20 Logistics Park;
    • Ryder Logistics 826,620 square foot least at Texport Logistics Center; and,
    • Masonite’s 626,719 square foot lease at Mesquite Airport Logistics Center.

Two of these transactions were in the South Dallas submarket, while the third was in the Mesquite market. Additionally, Pologis closed a $23 billion deal for 17.5 million additional square feet to its company portfolio. 

New Industrial Real Estate Development in Dallas in Q4 2022

Dallas ended the quarter with over 900 million square feet of industrial inventory after adding nearly 14 million square feet in Q4 2022. Over 92% of all new projects delivered this quarter were speculative projects, and over two-thirds entered the market vacant. New deliveries outpaced projected demand by nearly 5 million square feet, 

As of Q4 2022, the Dallas industrial market has over 81 million square feet under construction—nearly 43% higher than the same time last year. Dallas’s construction pipeline is planned to deliver an additional 43 million square feet of industrial space in the next three years. About one-fifth (20.3%) of these construction projects are pre-leased. 

Below is a table showing notable projects under development and their estimated completion dates.

Property Address Property Owners Square Footage Submarket
2300 E Beltline Rd Walmart 1.5 million South Dallas
Tradepoint 45 West Champion Partners 1.35 million South Dallas
TCC 35 Eagle Trammel Crow Co. 1.25 million Alliance

Market Forecast for Dallas Industrial Real Estate Market in 2023

Dallas’s industrial real estate market is in a good position as we enter 2023. Although construction might slow in the second half of 2023, activity is expected to remain among the highest in the nation. 

Leasing activity will remain high in 2023, giving landlords plenty of opportunities to lease new construction. Depending on economic uncertainty, subleasing rates might also rise in 2023. 

Takeaways for Industrial Real Estate Investors

Investors have a lot of options for investing in the Dallas industrial space thanks to the highly active construction pipeline. Investors should focus on acquiring new class A industrial space, particularly for warehousing/distribution purposes. The only thing that investors may have to worry about is potential construction delays from rising interest rates.

As always, stay vigilant, do your research, and happy investing.

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