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CRE Opinion

DFW a Top Market for National and Global Investors

CBRE's Eliza Bachhuber: Our market has come a long way—and the future paced by industrial development continues to shine bright.
By Eliza Bachhuber |
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We’ve all seen the headlines: Dallas is the place to be these days. Census data shows that Dallas-Fort Worth had the highest population growth of any metro in the United States between 2020 and 2021. Demographers predict that DFW’s population will reach 10 million in the 2030s, which would have us surpass Chicago as the third-largest metro area.

The population growth combined with the many headquarter relocations has made Dallas an international hub. Big-name restaurants from places like New York and Los Angeles are adding Dallas as one of their top expansion destinations – I’m still trying to get a reservation at Carbone!

Naturally, as the city has grown, so has the interest from national and global investors. Historically, the investment market in DFW was dominated by the office sector, but in the last decade or so, we’ve become a top market for investors looking to add to their industrial portfolios. And even as our world has gotten pretty crazy, DFW will continue to be a preferred destination for capital.

One of the most attractive qualities of DFW has always been the amount of space for development. Unlike coastal markets, like Los Angeles or New York, we are completely landlocked, so growth can happen in any direction. But now, space for industrial is very competitive and limited. Developers are having to go places like Denton and Midlothian to find space. The strong industrial market is further bolstered by the two intermodal ports at AllianceTexas in Fort Worth and in the South Dallas submarket, which allow large containers to be shipped via air or rail from Southern California and Mexico. This cuts down on supply chain delays and other issues that other markets have, especially as consumers have become reliant on e-commerce and fast shipping speeds.

The emergence of e-commerce has created a seemingly insatiable demand for warehouse and distribution space. Developers are effectively running out of room to build new industrial product, especially in in-fill submarkets. Demand for conveniently located product has grown exponentially as the new supply is virtually nonexistent in in-fill locations. In turn, this has caused rental rates to grow at record rates. In DFW, rental rates increased 34.4% between Q1 2021 and Q1 2022 with a 11.3% increase from Q4 2021 to Q1 2022 alone. 

While the logical thought would be this would be a barrier for some logistics companies, they typically have significantly lower fixed costs compared to other product types. Typically, industrial space users allocate 45-70% of their total spend on transportation costs compared to 3-6% on fixed facility costs, including rent, utilities, and insurance. With gas prices steadily rising, companies are willing to pay more in rent if it decreases their overall transportation costs.

As the financial markets across the world have struggled over the past few months, there has been a flight to security from investors looking for safer investment strategies. From an industrial perspective, investors are looking for properties that have below-average rents and short-term weighted average lease terms (WALTs). They are incredibly bullish on the rental rate growth, which should help hedge against rising interest rates and inflation.

Overall, there is significant confidence in DFW as an investment destination. From investors looking to put their money in real estate to retail looking to open up shop, our market has come a long way—but the future looks even brighter.

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