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[IMGCAP(1)]DALLAS-North Texas has surged out of the 2008 gate with a strong showing in its industrial sector–development at a seven-year high and vacancy at a seven-year low. Although early signs call for a promising year, it’s not too likely the region will match 2007′s 14.2 million sf of absorption or be able to hold onto its 8.3% vacancy.

On the dark side, Dallas/Fort Worth’s 642-million-sf industrial marketplace is predicted to slow down, primarily due to its development pipeline and the US economy. But the good news is the region’s not going to stagnate as the year progresses.

“I’ve tried to talk myself into being skeptical, but there’s a bunch of leasing happening,” says Gary Lindsey, senior vice president in Dallas for the Santa Ana, CA-based Grubb & Ellis. “These first three weeks are really encouraging.” The firm yesterday released its yearend industrial analysis for Dallas/Fort Worth, showing absorption at its best level in years.

In the fourth quarter, 3.8 million sf was added to the inventory. There is 15.4 million sf still under construction and the year’s still young. The latest project to be unveiled is Atlanta-based IDI’s Speedway Distribution Center, a 2.1-million-sf plan for four buildings at Texas 114 and Interstate 35W in North Fort Worth.

In fact, development activity in North Fort Worth and the DFW airport submarket resulted in both areas dipping into the red for fourth quarter absorption, according to the firm’s research. [IMGCAP(2)]“We may see some developers pull back a bit,” forewarns Ariel Guerrero, client services manager for the brokerage house.

At year’s end, the DFW airport submarket led the region in total absorption. The 58.2-million-sf inventory, which is 12.9% vacant, reeled in 3.36 million sf of deals. There is slightly more than two million sf in its 2008 pipeline. Average rents are $4.32 per sf for bulk space and $7.53 per sf for R&D/flex.

In sharp contrast, North Fort Worth absorbed 273,241 sf for the year and slipped by 496,229 sf for the quarter. The 55.6-million-sf inventory is 6.6% vacant. When the report was written, there was 751,300 sf under construction, but IDI’s announcement changed that stat.

Guerrero says the one certainty for this year is the region’s overall vacancy isn’t going to decline, simply due to the pipeline. “Industrial users may have the upper hand” by year’s end, he says. And, he adds, there is a chance warehouse demand could actually increase in the region if the US economy continues to backslide because suppliers might need to keep more inventory on hand for customers.

As the year plays out, Lindsey says lease negotiations will become more creative. “It’s awfully hard to raise rates when the tenant has so many alternatives,” he tells GlobeSt.com, advising owners to “make the first deal you see.”

Lindsey says concessions have been steadily increasing. Size and credit-worthiness now can yield three to six months of free rent for a five-year lease. Tenant improvement allowances also have increased. And making a comeback are stair-stepped rates with 4% to 5% annual bumps instead of flat rates, he says.

In the yearend report, the average Q4 rent dipped $0.06 to $4.65 per sf on an annual triple net basis for all product types. Guerrero attributes the decline to a 20-cent drop per sf for the research and development/flex sector, which cost an average of $6.60 per sf, triple net, at year’s end.

Despite signing incentives and flat rental rates, Lindsey says there are newcomers who are sizing up the market to centralize and consolidate their domestic operations. Dallas/Fort Worth has become an inland gateway for ports to the west and south, with added clout from its central US positioning as a means to lower overall transportation costs.

In looking at individual submarkets, Northwest Dallas was the fourth quarter’s absorption leader, with 1.26 million sf and topping 2.5 million sf for the year. The 19.2-million-sf submarket has a 13.1% vacancy and 3.1 million sf under construction. At year’s end, warehouse and distribution rates were $4.45 per sf and R&D/flex, $12.60 per sf.

South Fort Worth’s 71.3-million-sf inventory, which is 4% vacant, absorbed close to 1.1 million sf in Q4 and 1.9 million sf for the entire year. Its bulk space averages $3.67 per sf and R&D is $4.13 per sf. And its sweet spot is there is nothing under construction.

South Dallas has 1.85 million sf rising and the central submarket has 1.56 million sf coming out of the ground. South Dallas’ 36-million-sf inventory has a 4.6% vacancy; the central submarket’s 127 million sf is 6.9% empty. Their rates are $2.94 per sf and $3.65 per sf, respectively, for warehouse space in South Dallas and central and $4.19 per sf and $5.94 per sf, respectively, for R&D/flex.

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