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DALLAS-With the ink barely dry on the latest market report, industrial brokers were busy bedding down five more deals to pull another one million sf or more from the available list. Activity is such that ProLogis has filled a 521,200-sf warehouse within six months of delivery and could be laying the groundwork to add 260,390 sf to the footprint.

“This is definitely the best industrial leasing year since 1999,” says Craig Hughes, director for Dallas-based Cushman & Wakefield of Texas Inc. C&W’s research team tracked 6.4 million sf of absorption to date this year, with 5.1 million sf delivering and 6.2 million sf under construction. The 368.6-million-sf inventory was 12.3% vacant, but that’s changed in recent weeks with a rash of large leases.

Deals have been made by ProLogis, Ridge Property Trust and USAA Real Estate Co. And though there’s conflicting information about the size of one more deal, it’s been confirmed it’s “a real deal.” Some on the street say it’s 250,000 sf; others say maybe as much as 750,000 sf. Until more details surface about the CB Richard Ellis-brokered market run, the Denver-based ProLogis holds the title as the king of the just-closed stack.

Because ProLogis is a public company, a spokeswoman says the deals can’t be discussed because “they haven’t been announced.” But, the market doesn’t wait for corporate announcements. GlobeSt.com has confirmed that ProLogis Park Mesquite Distribution Center at 5351 Samuel Blvd. has been filled and plans are afoot to add 260,390 sf to push it to the maximum of 781,380 sf.

ProLogis’ double run is putting Bissell Homecare Inc. into 260,600 sf and Prime Distribution Center into the 260,390-sf balance. And, Internet research shows a proposal went out in early June to add 260,390 sf to Prime’s bottom line. Word on the street is the pair inked five-year leases for space that was on the market at $3.25 per sf, triple net.

Chicago-based Ridge filed away a five-year lease with Don Miguel Mexican Foods Inc. of Anaheim, CA for a 104,691-sf, freezer building that it bought last year and retooled. Specialty buildings often linger on the market, but the 14310 Gillis Rd. property in Farmers Branch had been on Don Miguel’s radar screen, says Gary Lindsey, senior vice president for Grubb & Ellis Co. “They’ve been considering that building for over a year, but the final negotiations took place in the last three months,” he says.

Don Miguel, which has a production plant in neighboring Garland, will get its keys Sept. 1 to the Gillis Road building, marketed at $5 per sf, triple net. The tenant reps were Steve Little and Brandon Rigelsky with Merchants Realty in Dallas.

In Fort Worth, Davoil Inc., doing business as Quorum International added 105,857 sf to its 480,000 sf in Railhead Industrial Park, sealing a new direct deal for the long term to get expansion room beside its two other buildings for a central distribution center. Trey Fricke, managing partner in Lee & Associates Dallas, says the 275,000-sf warehouse at 801 Railhead Rd., which delivered two months ago, has three deals working for all or part of the balance. The next signing, he predicts, will be in 30 days–the signal to begin construction on a 400,000-sf addition in the 633-acre industrial park, owned by Zephyr Rail Industrial, a partnering of the San Antonio-based USAA and Cornell Co. of Fort Worth. Lee & Associates’ Mark Graybill teamed with Fricke to negotiate the direct deal with the locally based Davoil, a distributor of fans and lighting fixtures.

“Tenants across the metroplex are expanding,” says Chris Jackson, principal with Stream Realty Partners LP in Dallas. “They’re beginning to make quicker decisions. And, we’re seeing fairly decent expansion going on across the metroplex.”

As a result, concessions like free rent are declining. Not too long ago, a 100,000-sf to 150,000-sf deal could get eight to 10 months shaved off a five-year term. It’s dipped to four to six months. The majority of five-year leases are flat rates; six- to 10-year pacts have several bumps.

“I think the way that the economy is going that companies think they can expand and do so safely,” says Jeff Thornton, leasing director for the Indianapolis-based Duke Realty Co.’s Dallas division. As it stands right now, Duke is bringing out more spec space than anyone in the marketplace–nearly two million sf. “We look at the market and we think there’s a decent amount of pent-up demand out there,” he says.

Thornton says Duke’s construction is in step with demand–large warehouses. The larger size “helps mitigate the increased building costs,” he explains. “It doesn’t take care of all of it, but it helps.”

There are RFPs in the market for one 1.5-million-sf deal and another for two million sf. The brokers say they are “real deals” that are sure to land some place in Dallas/Fort Worth. “There are lots of 250,000 and 500,000 deals floating around,” Hughes says. But even if they’re made, he predicts vacancy will still hang around 12% to 13% due to the construction volume.

Hughes says the region historically doesn’t produce six million sf unless vacancy dips into the single digits. “If we continue at this pace, we’re basically just holding ground,” he says, forewarning that “it’s going to get bloody.”

As the industry is keenly aware, the under-construction factor will translate into downward pressure on rental rates, now ranging from $3.54 per sf to $7.93 sf. A year ago, the rents were $3.52 per sf to $7.82 per sf, according to the C&W report. “Rent growth has not kept up with the cost of construction,” Hughes points out. In the past six to eight months, he says construction prices rose from $35 per sf to nearly $42 per sf.

Hughes says the heaviest increase has come from mechanical, electrical and plumbing contractors. “Everyone talks about steel and concrete,” he says. “What may be more significant is the MEP component. Contractors are busy and I don’t know that you’re getting good competitive pricing.” As it now stands, specialty contractors are putting a 30-day limit on quotes and requiring a 12- to 14-week lead time before they move onto the job. “This has not happened since 1999,” Hughes says.

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