Dive Brief:
- Developers are seeing a 40% reduction in the construction of warehouse space in Dallas-Fort Worth since first quarter 2016, noted real estate firm Cushman Wakefield, The Dallas Morning News reported Wednesday. At present, 14.6 million square feet of industrial buildings remains under construction in Dallas-Fort Worth.
- The reduction is believed to be because of lower land availability and a tighter labor market. Also at issue are rising construction costs.
- Leasing rates have not declined. Approximately 12.3 million square feet of D-FW industrial space has already been leased this year, a 12% increase over the first half of 2016.
Dive Insight:
In January 2017, the industrial sector registered its 27th consecutive quarter of net warehouse occupancy gains, marking one of the longest expansion rates in recent memory.
However, some markets could be reaching saturation. Commercial real estate firm JLL stated that supply is currently meeting demand, but also said oversupply continues to be a risk, especially when so much of the current construction is speculative, as evidenced by the fact that the only markets with vacancy levels under 3% are Los Angeles at 1.4%; Orange County at 2.0%; East Bay/Oakland at 2.9% and Nashville at 2.9%.
The growth in warehouse capacity can't last forever, of course, despite the expansion of e-commerce and a consumer base demanding selection, value, and speed. Rapid expansion is rarely sustainable, and because prices remain high, builders are wise to slow construction in order to meet demand and retain high profit margins. Slowing warehouse construction may also help avert market collapse caused by stagnant demand.
