For roughly the first 15 years of my career in commercial real estate, site selection for industrial warehouses boiled down to lease economics for most companies. Operating expenses, location, design, nearby amenities, and inventory tax of different municipalities also played roles to varying degrees, but overwhelmingly it was about how much free rent we could earn and how we could achieve the lowest rental rate for our clients. Economics was always the main driver.
More recently, I’ve noticed a shift away from the “old school” approach of site selection. Labor now dominates the conversation for companies—whether they are chasing white-or blue-collar workers. Some recent lease signings have shunned tens of millions of rental savings to relocate to vastly more expensive buildings, where they can draw from their preferred labor pool.
For example, a recent manufacturer was in the market for over 1 million square feet of space. This tenant, like most corporations of a similar size, analyzed the entire DFW market. They looked from South Dallas, where they had six available options over one million square feet, all the way out to North Fort Worth/Alliance. Ultimately, they shunned roughly $15 million in lease savings from buildings in South Dallas in favor of buildings near the labor pool in North Fort Worth/Alliance. The same thing happened on another recent 600,000-square-foot lease we handled, where the client chose to relocate from Allen to Sunnyvale, near Garland, Mesquite, Balch Springs, and Forney—areas known to have a large blue-collar workforce.
South Dallas appealed less to these clients because it has a relatively limited labor pool, while North Fort Worth has an incredible mix of blue- and white-collar labor. Within the Alliance development in the North, Dallas-based Perot family developer Hillwood followed the old adage “If you build it, they will come.” It created housing, retail, amenities, infrastructure, etc. and went into local areas such as Northlake and Roanoke, which have great school systems that help drive families to live there. This is an excellent example of the kind of development that draws potential workers to an area, furthering development and increasing site selection.
Unfortunately, there is little activity in far South Dallas except the development of big box warehouses—which fit well with the area’s access to interstates and the UP-intermodal yard—and the re-development of RedBird Mall, a large and beneficial project led by Glenn Russell’s Terrence Maiden. What we really need are new residential and retail developments, amenities, infrastructure, much like those Alliance Texas has in place. More importantly, we need good school systems to drive demand for housing.
My prediction is that the next industrial hot spots down South will be Midlothian, Waxahachie, and Ennis areas. Why? They have large labor pools, but more importantly, they have good schools, which is what’s driving the housing being built in the southern suburbs.
Conrad Madsen is co-founder and partner of Dallas-based Paladin Partners
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