What to Know About the Upcoming Shift in South Dallas’ Industrial Landscape

Over the past 20 years, South Dallas has experienced significant ups and downs in its industrial real estate market. The area saw periods of rapid construction and property deliveries, followed by dry spells while developers waited for buildings to be absorbed.

As a new and emerging industrial hub, South Dallas delivered more than 78 million square feet in just two decades and is still perceived to have an abundance of undeveloped farmland to add even more. This has always been the main threat for investors, as tenants have access to new and sometimes more efficient buildings when their leases expired.

However, the South Dallas industrial market will be maturing sooner than expected.

The risk of additional inventory being added is still our current reality; however, it is not a runway with no end. Aerial views may suggest that there is still additional ample land available for development, but much of it has already been allocated for specific projects.

At Colliers, we are tracking around 22 million square feet of potential/planning developments for the submarket. After this pipeline is complete, infill sites for large-scale industrial development opportunities will be increasingly scarce.

The AI Implication

One of the primary drivers behind the current shift in South Dallas is the increasing demand for data and artificial intelligence computing centers. The I-45 corridor has become well sought after for data center developers securing nearly 1,500 acres within the industrial market.

This surge in demand is largely due to the availability of existing and planned power infrastructure, which is critical for these energy-intensive facilities. By AI/data centers taking 1,500 acres, this wipes away more than 21.7 million square feet of potential industrial space that would have been added to the South Dallas industrial market.

This shift represents a major change in the South Dallas landscape with data centers now competing for land that could otherwise have been used for industrial real estate. The data center groups are able to pay significantly higher prices for land than industrial developers, which is further complicating the competition for industrial development sites.

As a result, the supply of industrial space is tightening faster than predicted, and investors are finding that their options will be more limited as time progresses.

Looking Ahead

Based on the last decade’s absorption average of 6.8 million square feet per year, we expect the existing inventory of 13 million plus the existing pipeline of 22 million to take about six to seven years to stabilize. In such time, both data centers and industrial development are expected to continue growing in South Dallas.

Buildings will continue to be leased, and the presence of significant power capabilities will further solidify the area as a tech hub. However, as we reach an unprecedented maturity, market dynamics will inevitably shift and will cause opportunistic investors and developers to explore the next frontier.

Potential frontier markets like Waxahachie, Midlothian, and Ennis are located farther down highways like U.S. 67, Interstate 35, and Interstate 45. For those utilizing the facility for north/south distribution, these markets will make a ton of sense.

With nearshoring and onshoring becoming ever present, end users are evaluating most efficient hubs that maximize drivers’ maximum hours of service. The southern hemisphere of DFW will continue to be a desired location with this being just toward the end of a driver’s hours of service if coming from the border.

End users that are looking for mainly east/west distribution will continue to be attracted to assets with proximity to Interstate 20, which will continue to be a driver for the South Dallas market as we know it.

Although South Dallas is experiencing growing pains, the future and fundamentals remain extremely promising for industrial real estate. As the market evolves, it will be vital for investors to stay ahead of the curve and anticipate the next wave of opportunities, both in South Dallas and beyond.

Before we know it, we will wake up and South Dallas will have evolved into an infill, stable, and mature market where vacancy volatility will vastly diminish.

This CRE opinion piece was written by Ben Wallace, vice president at Colliers Dallas-Fort Worth.