Industrial and multifamily construction is dominating the D-FW building market, LGE Design Build says.
That’s according to the firm’s construction delivery outlook for the second quarter of 2024.
While there has been a decline in industrial construction since its mid-2022 climax, more than 15.6 million square feet of leased industrial space is slated for delivery soon in North Texas, the report said. The core of that space is located in Kaufman, Denton and Collin counties.
LGE’s research found that the market remains buoyant despite headwinds such as rising costs and a constrained capital markets environment.
The firm, which opened a second headquarters in Dallas in addition to its Phoenix base last year, found that cold storage and manufacturing facilities continue to be a point of demand.
In the industrial space, record-breaking deliveries — there were 62.3 million square feet of space delivered last year — have driven up the total vacancy to 10%, according to LGE. However, the firm’s research found leasing activity remains above pre-pandemic averages.
LGE reported there haven’t been significant material shortages, such as structural steel, lumber and concrete. That bodes well for smoother construction execution.
The cost of goods and construction has dropped by several basis points since highs in 2021 and 2022, according to LGE’s producer price index. However, goods have been ticking up once again since mid-2023.
Procurement pain points include HVAC units, due to shortages of copper and electrical components, and electrical components generally, which is related to the strain put on the commodity class given the additional demands from the automotive, consumer goods and the Internet of Things industries.
The firm found that with capital being deployed and debt placed on significant developments, there is a sense of optimism, especially as many look ahead to anticipated interest rate cuts.
It’s been about a year since LGE Design, along with its affiliated developer Creation, opened its second headquarters in Dallas’ Design District. The firms initially expanded to D-FW in 2020.
“When we decided we wanted to go out into a new market beyond Phoenix, we wanted it to be a bigger, pro-growth market. Something that was going to be a growing economy for the next 10 to 20 years,” said David Sellers, CEO of LGE Design Build and founding partner of Creation.
“There are not that many economies out there that are stronger than Phoenix when you think about what’s happening right now. With Dallas and Texas and in general, companies want to come here for the quality of life, tax base and a general pro-business environment. Phoenix is the same way.”
With Creation, which develops across a variety of asset types, Sellers has noted that a lot of the groups that were sitting on the sidelines last year are getting active again. He attributes that to the idea that most believe the U.S. has seen the end of Fed increases and are hoping to see interest rate cuts at some point this year.
“You’ve almost bottomed out, per se, as far as some of the dynamics behind how to capitalize these deals,” said Sellers. “It’s been much busier in 2024 and really since the fourth quarter for us in terms of capitalizing projects than it was in 2023.”
Creation, which has a significant industrial presence in the region, recently snagged two key tenants, aerospace defense giant Lockheed Martin and Big Ass Fans, to lease its Fort West Commerce Center.
Other local projects include the 820 Exchange business park in Haltom City and Dallas’ Bottled Blonde and Backyard locations, in addition to Fort Worth’s parallel outposts.
