Dallas industrial market: A closer look at submarkets and future trends

The industrial real estate sector in Dallas, Texas, has witnessed remarkable growth and achieved significant milestones in recent years. With the market surpassing the one-billion-square-footage mark, second only to Chicago, it has become a key player in the industrial sector.

According to Q1 2023 data from Colliers, the Dallas-Fort Worth (DFW) industrial market continues to thrive. Construction levels remain elevated, with 62 million square feet under development. However, for the first time in eight quarters, the quarter-over-quarter construction growth rate has slowed. The delivery of a record 19 million square feet of speculative development has affected vacancy levels, resulting in a slight increase to 6.3%.

Rental rates in the warehouse sector have surged to all-time highs, with big-box rates reaching $5.72 NNN and non-big-box warehouse rates peaking at $8.39 NNN. These escalating rental rates indicate the robust demand and competitive nature of the Dallas industrial market.

To truly understand the Dallas industrial market, it is crucial to examine submarkets within the region. Transwestern Development Company Regional Partner Denton Walker emphasized the variations across different submarkets.

“The best submarkets in North Texas, such as north Fort Worth and north Dallas, have positive lease activity where there is better labor supply available,” said Walker. “The southern sector of the Dallas-Fort Worth area will experience slower lease activity for ample bulk distribution warehouse space due to the large supply available and less labor available.”

By focusing on submarkets, real estate professionals and investors can identify specific areas with unique characteristics, labor availability and infrastructure that align with their requirements.

In addition to submarkets, another delineation that’s important is the size of the project. Allen Gump, EVP at Colliers, splits the market between projects larger than 250,000 square feet and those that are smaller.

“In some places in the Metroplex, it’s very hard to find 150,000- or 200,000-square-foot space. In Dallas, for example, you really do have trouble finding spaces under 250,000 feet that fit the criteria that you’ve got,” Gump said. “The dynamics are very different.”

He explains that industrial development in the Dallas market has reached a turning point. While there are still numerous buildings under construction, the feverish pace of development has eased. Developers are now adopting a more cautious approach, with fewer new projects being initiated without significant leasing activity.

“It wasn’t that long ago that there were something like 17 million-square-foot buildings under construction around the Metroplex. That’s a lot of million-square-foot buildings,” said Gump. “It costs a lot to carry a million-square-foot building for several months or even longer.”

With factors such as rising interest rates and reduced liquidity, developers are now seeking greater stability and demand before commencing construction. This shift signifies a return to a more sustainable pace of development.

Newmark Managing Director Zach Riebe shed light on the capital markets for industrial properties in Dallas. Smaller, bite-sized deals are currently in focus due to challenges in financing larger projects. This shift aligns with the cautious approach taken by both equity and debt providers.

“There’s a theme we continue see is that buyers, developers, and equity/debt providers continue to prefer smaller, more infill projects in today’s environment, whether that be pursuing acquisitions or speculative development,” Riebe said. “However, we anticipate that there will be some larger portfolio trades and capitalizations in 2023 as larger institutional investors creep back into the market and feel the pressure to deploy capital .”

While the cost of capital has increased, the broader macroeconomic tailwinds in Texas, including favorable borrowing costs and availability of capital, continue to support the demand for industrial real estate. Despite the evolving financial landscape, the Dallas market remains a strong performer compared to other tier-one markets across the country.

Newmark President and Global Head of Industrial and Logistics Jack Fraker underscored the strength and resilience of the Dallas industrial market.

“The market’s fundamentals, including leasing activity, absorption, and rental rate growth, are at record levels,” he said. “The presence of a vast inventory of smaller buildings offers reliable and predictable returns, particularly in infill submarkets closer to population centers.”

Looking ahead, the Dallas industrial sector is expected to maintain its strength due to a variety of factors. These include the exceptional labor force, excellent transportation infrastructure, central location, access to major airports and availability of economic incentives for industrial development. The growth of educational institutions in the area, such as Southern Methodist University and the University of Texas, further contributes to a talented workforce.

With a diverse range of submarkets, a slowdown in big-space development, and a cautious approach in the capital markets, the Dallas industrial sector is adapting to changing conditions. Despite challenges, the market’s fundamentals remain strong, attracting investors and tenants alike. As the sector moves forward, careful analysis of submarkets and an understanding of future trends will be essential to unlocking the full potential of the Dallas industrial market.

Colliers closes $16.5 million Fannie Mae loan for The Chandler in Grand Prairie

The Colliers Dallas debt and structured finance team of Robert Siddall, William Givens, Shawn Givens, and Ken Higgins closed a $16.5 million Fannie Mae loan for the acquisition financing of The Chandler in Grand Prairie, Texas, with their long-term client David Lilley and Reap Capital LLC. 

The market-rate property features 164 units. The loan was arranged through Colliers Mortgage and carries a five-year term and 35-year amortization.

Colliers welcomes new senior vice president to its Austin office

Colliers announced the new hire of Senior Vice President Patrick Hill as an occupier services and capital markets broker. Patrick will focus primarily on tenant and buyer/seller representation in Central Texas in the office sector.

His experience encompasses complex and high-value leases and buyer and seller representation, totaling over $100 million in relocations, expansions, dispositions, purchases of all sizes, and everything in between. Patrick is recognized by his clients as a creative and knowledgeable broker, providing a wide scope of knowledge-backed guidance compiled from the transactions he is part of, including the complexity of Austin zoning, permitting, and current lease/sale comparables.

Before joining Colliers, Patrick helped found the TCU Real Estate Club in 2008, which is still in operation and has become a booming club for the school’s students; the club is a resource for education, experience, and career opportunities for its members. Patrick sits on several non-profit boards and volunteers regularly at Hope Food Pantry.

Colliers announces leadership transition in Houston

Colliers Houston has announced that Patrick Duffy will be stepping down as president of Colliers Houston this summer and that Danny Rice, currently managing director of Colliers in Orlando, Tampa Bay and Southwest Florida will be replacing Duffy. Duffy held that position prior to moving to Houston in 2009.

“Danny is the perfect replacement for me”, Duffy said. “I hired Danny straight out of college in 2007 and he spent the first couple of years in GIS and technology support before moving to brokerage as an office landlord and tenant representative. He started in a company structure that I set up.”

Danny left Colliers to pursue several entrepreneurial real estate tech opportunities. Just prior to rejoining Colliers in 2018, he was the chief revenue officer at Xceligent, one of the leading providers of commercial real estate information and research at the time. During Danny’s tenure, he grew from a local sales rep in Florida to quickly becoming regional vice president of sales for the Florida markets and then executive vice president of national accounts before becoming chief revenue officer. Danny oversaw a team of nine regional VP’s, 60+ outside sales reps, 20+ inside sales reps and 20+ customer success and marketing professionals. He was also heavily involved in product and development efforts within the organization.

Duffy said, “I wasn’t in a big hurry to step down but had been thinking about proper timing and planning for the transition for a couple of years. I spoke with Danny frequently on Colliers business and also sent him training materials I had developed since leaving my old role in Florida. Danny and his wife have family in Dallas, and he mentioned that they had a long-term goal of moving here. I casually asked him if Houston was close enough and mentioned that I thought he was a perfect cultural and experience fit for taking over my job (when he was ready). Last year, he called me and said they had decided they were ready. After meeting with our board of directors for about six hours, our team agreed that he was the perfect candidate and to move forward with Danny.”

Duffy said he was much more focused on leaving the Houston office in good hands than perfect timing for his plans. He will remain at Colliers Houston in a brokerage role and focus on helping his relationships with their real estate issues and will remain a partner in the firm.

Duffy has had a long and successful career in commercial real estate since entering the industry in 1983 in the tech space. He was part of a team that developed the first CRM for the PC platform along with a full suite of database tools for commercial real estate prior to moving into a brokerage production and sales management role in 1985. He was responsible for managing and growing the firm that eventually became Colliers Tampa Bay, Colliers Orlando and Colliers SW Florida over the following 24 years.

When Duffy took over the leadership role in Houston in 2009, the firm had 36 producer/advisors. The firm has grown to be one of the largest commercial real estate companies in South East Texas with over 82 advisors, and 2022 transaction volume of roughly $3 billion. Revenue to the firm has increased over 550% since 2009.

“Our big focus has been on building a top-quality platform where our advisors can focus on exceeding our clients’ expectations. We have been more interested in culture and quality than size,” Duffy said. “The growth came mainly from our existing team talking to their friends in the industry about what a great team and environment we have built here.”

The top goal for the firm for the past 14 years has been to have happy people and maintain the culture of the organization. In 2015, the company took a survey developed by Michigan State University and provided by Steelcase, Inc. which was designed to show the current and desired cultures of a company. According to Steelcase, Colliers Houston was the first firm they had heard of to have a current and desired culture map that aligned.

Pat has had a wide range of “side” roles over the years. He helped start the retail platform at NAI in the late 80s and started the Colliers Retail Services (North America) platform where he served as chairman for over 15 years. He served as a member (and chairman) of the Colliers Managers Steering committee, the Board of Directors for Colliers USA and is the past chairman of the Colliers USA Board of Advisors. He won every award a manager could win when his firm was associated with NAI and has won every award for non-producers at Colliers including the Pinnacle Award for service, Manager of the Year, Tom Richardson Award (character) and others. He has also been awarded Most Admired CEO by the Houston Business Journal, Best Bosses from Real Estate Forum Magazine, Executive of the Year (REDnews), People’s Choice award (REDnews), named a Texas Real Estate Icon, and top Faculty award from CORENET.

“It has been a very good run for me. I love my career and am proud of what we have been able to accomplish in both Florida and here in Houston. The award that means the most to me is the number one Best Places to Work in the large company category in 2022,” Duffy concluded.

“We are excited about Danny taking the lead for our firm going forward,” said Bob Parsley, chairman of Colliers Houston. “We would have been happy with Pat running the company for another decade, but we are at a point where he wants to dial it back and bringing on an experienced, new leader with great focus and energy is just what we need to take Colliers to the next level.”

Colliers Mortgage hires Greg Young, Senior Vice President, Production Manager

Colliers Mortgage, the debt financing arm of Colliers | U.S., is pleased to announce the hiring of Greg Young as senior vice president, production manager based out of Houston, Texas. Greg has an extensive career within commercial real estate finance and joins Colliers Mortgage with over 21 years of experience, having closed $2.5 billion in financing over his career. 

Greg will work with the Colliers Mortgage team with a focus on production across the country for all income producing properties.

Colliers Mortgage is excited to add this veteran finance professional to our team as we continue to grow our platform across the U.S.