Dallas-Fort Worth is a boom town right now. Cranes dot the skyline across many parts of North Texas and giant tilt-wall boxes, in many cases larger than one million square feet, are being put up at an aggressive pace. What do these giant square buildings store inside them? Quite simply, all of the things that people in a metro area, that is growing by roughly 400 people a day, need to fill their households: clothes, furniture, toys, electronics, and various other appliances. And let’s not forget all the construction materials needed to build the 30,000 or so single-family homes underway, or the roughly 50,000 apartment units currently under construction. That’s just a convoluted way of saying that the reason the DFW area has delivered almost 63 million square feet of industrial space since 2013 is due to the tremendous population growth. Over the past three years, total net absorption has been over 17 million square feet per year. There are a few indicators, however, which point to a slowing from the record levels DFW has seen over the past couple of years.
One of the sectors that has been driving a significant portion of this demand is e-commerce. Over the past three years, e-commerce has accounted for between 15-20 percent of total net absorption. Amazon has been the most aggressively expanding industrial tenant in DFW since 2013. Currently, there are five existing Amazon fulfillment centers, along with some smaller distribution centers, which add up to a total of approximately 5 million square feet of space. A sixth fulfillment center is currently under construction in Coppell, which will bring the Amazon total industrial foot print in North Texas close to 6 million square feet before the end of 2017. Amazon isn’t the only big player in town. Walmart has its own e-commerce fulfillment centers, and there are several niche e-commerce distribution centers in DFW, like Stitch Fix.
The retail sector and e-commerce have been one of the most rapidly changing sectors of commercial real estate over the past few years. Amazon is currently in the process of acquiring Whole Foods, while PetSmart recently purchased the e-commerce pet supplier Chewy.com. Prior to that, Walmart purchased Jet, a rival of Amazon. This merging of traditional retailers and e-commerce companies point to a potential slowdown in net absorption for the industrial market, as the combined retailers and e-commerce companies can transition toward a more hybrid delivery system for online purchases. Walmart, for example, has recently been pushing for customers to purchase online, and offering a discount to customers opting for in-store pick up.
Outside of e-commerce, the DFW industrial market fundamentals point to a healthy but less active market than what we’ve seen over the past few years. Leasing activity and construction have been trending downward over the last few quarters, while the vacancy rate has been rising in the submarkets with most construction deliveries, namely South Dallas, North Fort Worth and Great Southwest. No one can say for sure what exactly the total impact will be of the merger of industry giants like Amazon and Whole Foods, but the combining of traditional retailers and e-commerce companies further blurs the lines between the retail and industrial commercial sectors. This will, in turn, impact the supply and demand fundamentals for both property types.
Steve Triolet is the director of analytics in Xceligent’s Dallas office.
