Dallas-Fort Worth was the top market in the country for industrial property absorption in the second quarter of 2020, according to a report from Marcus & Millichap.
The region absorbed more than 6 million square feet of industrial space—more than 1.5 million above the next two hottest markets of Atlanta and Houston.
Many of those deals were already in place before COVID hit, but leasing and construction activity remained strong well into the third quarter. At the end of the second quarter, vacancy rates for DFW were 6.9 percent and trending in a positive direction based on quarter-over-quarter figures.
The vacancy rate is higher than many markets, but the demand for space is high, too, as evidenced by the best absorption numbers in the nation.
A variety of factors play into the increased demand for warehouses and distribution centers. Consumers’ panic buying in the early stages, consistently much higher e-commerce rates, and movement to reshore critical supply chains have all impacted the industrial market, which will take more time to develop.
“The pandemic has, in essence, caused five years of e-commerce growth to occur in about a five-week period. This hike has created a ripple effect for industrial real estate, right down to the labor market,” said Adam Abushagur, Senior Vice President Investments at Marcus & Millichap.
Panic buying resulted in shortages and showed the limitations of the just-in-time inventory, while the increase in online purchasing to avoid trips to the store created a need for more small warehouses and cold-storage facilities close to population centers. Last-mile warehouses are key for retailers like Walmart who want to offer same-day delivery.
“This hike has created a ripple effect for industrial real estate, right down to the labor market.”
Entering the second half of 2020, vacancy in the 10,000 to 100,000 square-foot segment was under 5 percent nationwide, according to the Marcus & Millichap report.
The industrial deals grabbing the most attention locally continue to be of the mammoth variety. Amazon is, of course, the big player, with more than 1 million square feet leased recently in Southern Dallas, as well as a new fulfillment center in Frisco and another 1 million-square-foot fulfillment center planned in Forney.
The facilities will add a few thousand jobs to Amazon’s already large regional workforce.
HelloFresh plans to hire more than 1,000 employees for its new 375,000 square-foot cold-storage and shipping facility in Irving.
Amazon, HelloFresh, and other e-commerce giants are using both automation and skilled workers to keep those packages landing on your doorstep.
“With the urgent need for additional warehouse and distribution spaces, automation technology and higher demand for skilled labor has increased, even with the current high unemployment numbers,” Abushagur said. “Although some believe automation to be a solution to cut costs, the irony remains that automation requires some of the most labor expertise.”
A version of this story first published in the Fall 2020 edition of the Dallas-Fort Worth Real Estate Review.
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