GlobeSt.com EXCLUSIVE: Industrial Sector Marks Back-to-Back Upticks

"One could look at these numbers and ask did the industrial market ever have a recessionary experience," Robert Kramp, Grubb & Ellis' client services director in Texas, tells GlobeSt.com. Post 9/11, "the market tripped, but it didn't fall," he adds.

The region apparently has all the right stuff in the form of economic indicators although the overall vacancy is up just a tad, with the first quarter posting 8.8% in an inventory of nearly 629.3 million sf. In Q1 2001, vacancy was 8.7%.

Construction of industrial product is in check, job growth is still promising and investors are still looking, Kramp points out. The industrial sector, he says, clearly is "going to be the first to rebound."

The numbers show overall absorption was 364,030 sf in the first quarter. Three of nine submarkets absorbed more than 500,000 sf: DFW Airport, East Dallas and Northwest Dallas. Spec construction at the Q1 close was about two million sf; build-to-suit, a little more than one million sf; and owner-occupied projects, 978,200 sf.

Despite the hardy outlook, rent overall slipped by a nickel, with the per sf rate now standing at $4.77 triple net annually. The hardest hit rent sector was research and development/flex rent, plummeting 5.9% to 49 cents per sf annually.

Once again, the DFW Airport outshines its neighbors. It absorbed 672,788 sf in the first quarter, the bulk of which was warehouse/distribution space. That product type is fetching the highest rents around town--$5.06 triple net annually or $1.29 per sf more than its DFW counterparts and 76 cents per sf higher than Q4 2001.

Something positive can be found in each submarket, but North Fort Worth is where future prosperity most likely lies, thanks to Lockheed Martin's $200-million defense contract and 32,000 jobs over the long term. As the tightest submarket in the region, it is "on the verge of significant growth," Kramp says. Vacancy is just 5.1%.

The rosy outlook doesn't mean the DFW market isn't without its challenges, as commuters of Stemmons Freeway are well aware. Dallas' northeast submarket is shouldering the effects of the High Five transportation project, a five-year undertaking that kicked off in 2001. The first quarter numbers show a negative absorption of 798,951 sf out of an inventory of about 83.3 million sf. Vacancy is a brutal 11.2% and it's expected to rise as renewals are shelved in favor of easier access industrial space. When coupled with the telecom industry woes, the submarket's vacancy will push above 12% by midyear, Kramp predicts.

Still, there's cause to celebrate instead of mourn, with Kramp predicting that the market-at-large will outperform the nation this year. "The overall metroplex industrial market is positioned for future balance," Kramp concludes. "The relatively strong performance...indicates new expansion has already begun." Concessions will be history as rents start to climb in the coming quarters.