While this year has undoubtedly challenged the commercial real estate market, the industrial sector has thus far fulfilled its billing as the steadiest sector of the business. Fortunately, many companies have been able to hold their ground in these unprecedented times, and, even better, some have thrived in this new way of life.
The industrial sector has many ingredients that have contributed to its success and play a role in the ultimate taste of the market. A few elements can be poor performers without ruining the entire dish, but others must be present for the market to be palatable.
As we approach the fourth quarter, it’s time to check the temperature in Dallas-Fort Worth. All the right ingredients are there: net absorption, rental rates, deal activity, new construction, and capital markets still look very healthy.
Things aren’t perfect, but that’s to be expected during a pandemic and economic downturn. The velocity of the deal pipeline has been sluggish in 2020 as small business owners and corporations huddle to determine what adjustments need to be made to navigate the evolving economy. Imminent expansions turned into renewals or smaller transactions, and tenants approached landlords about restructuring leases to relieve cash-flow pressure.
Many factors are threatening to tug the economy into the proverbial pit right now. At the top of the list, of course, is COVID-19. With virtually all economic indicators flashing green, COVID-19 arrived unexpectedly like a fly in the soup. Then add in the fact that the country is as politically divided as it’s ever been leading up to one of the most important elections of our lifetime.
The retail business was already suffering when COVID-19 hit. The office sector is on hold as many employees work from home, and it will likely undergo a transformation to some degree. With so much uncertainty, how has the industrial sector fared so well? Simply put, it’s been the confluence of the following circumstances:
- The continued proliferation of e-commerce, fueled by increased online shopping due to the pandemic
- Industrial remaining the preferred asset class in an environment where, COVID-19 notwithstanding, there is more capital chasing fewer deals
- Overall confidence in the business climate, particularly in Texas, where reasonable taxes and stable job market have attracted residents and companies alike. Tesla and Joe Rogan are examples of this.
Accordingly, the industrial sector will stay at a steady simmer in Texas for the foreseeable future, and the above-stated factors are the confidence-infusing reasons for that. Things can and will change over time, but, for now, dinner is served, and we are going to have to learn to like it.
John Brewer is a principal in the industrial division for Transwestern’s Dallas office.