More than 33 million square feet in the pipeline won't be enough to keep Dallas-Fort Worth in top spot in industrial construction next year.
Phoenix has overtaken Dallas on Commercial Search's national list of industrial spaces under construction.
The 42.5 million square feet under construction in Phoenix still dwarfs the 49 million square feet of industrial buildings planned for North Texas. D-FW's 2023 numbers have been updated from an earlier forecast of more than 66 million square feet as developers hit the brakes in the face of high interest rates, tight lending conditions and market uncertainty.
Elsewhere in Texas, Austin's development pipeline ranks fifth in the nation at 18.2 million square feet. Houston ranked seventh with 12.5 million square feet.
Yardi relied on its sister company, CommercialEdge, to gather data for the project, which has a 2024 delivery date specified in the report. This figure was extracted in December 2023, and only industrial properties over 25,000 square feet were included in the analysis.
The softening of industry in North Texas is not surprising.
“What we're seeing is a significant drop in deal flow,” said Russell Oshman, managing partner of Vinson & Elkins' Dallas office and partner in the firm's real estate practice. “It's a slowdown, and I think it's really across sectors and across markets.”
Oshman, who works closely with investors and developers in North Texas, said there are fewer transactions on the market right now.
“It is primarily determined by interest rates, but not only. The impact of interest rates affects so many different places when it comes to pricing and therefore buying and selling real estate,” he said.
The lack of buyers and sellers in this space is yet another reason for developers to be wary. Many companies develop products to sell faster rather than hold on to for years at a time. And as companies want to take up less and less space, it's a further blow to the confidence needed to keep moving forward and building, especially speculatively.
“Especially in the industrial sector, the market peaked from about late 2020 to early 2022, and then the impact of interest rates really caught up with us,” Oshman said. “The price of industrial assets rose rapidly, and people were willing to pay for it, but suddenly they realized that it was much more expensive to borrow money.”
“The party is over quickly,” Oshman said, as the cost of debt increases the cost of equity.
But this year, he said, there is hope.
“If interest rates could come down, and the market recovers quickly with cheaper credit available, credit standards and banks could loosen up a little bit; We have seen a significant increase in deal flow,” Oshman said.
D-FW was responsible for some of last year's largest deliveries, according to Yardi's rankings, although the pipeline has shrunk but remains strong in scope and volume.
The three buildings North Point delivered in Fort Worth in the fourth quarter total more than 2.8 million square feet, making it the fifth largest building in the country. Falcon Commercial Development completed his four buildings in Northlake in the second quarter, bringing more than 2.2 million square feet to the market.
Dallas-based Hillwood, Mohr Capital and Lincoln Property Company played roles in large-scale projects outside of Texas.
Hillwood has developed the nation's third-largest industrial delivery in Boston, with a 3.8 million square foot project in Rockford, Tennessee (No. 6) and a 2.6 million square foot project in Richmond. More than square feet. , Virginia (No. 9).
Mole Capital's more than 2.4 million square feet in Indiana and Lincoln Property Company's 2.3 million square foot development in Litchfield, Arkansas, ranked 12th and 14th, respectively.
