DFW Developers Take Cautious Tact with Mega-Projects

DALLAS-Texas industrial developers are on a weight-loss diet as big box spec construction tightens its belt, particularly in the state’s northern tier.

“Things will come back,” Al Sorrels, industrial partner in Dallas for Sacramento-based Panattoni Development, tells GlobeSt.com. But for now, less is better when it comes to building and leasing in what is historically a premier US distribution hub.

A five-year trend for mega-box construction has subsided, with buildings now hovering in the 250,000-sf to 600,000-sf range. Several projects of that size are under way in the region. What once was considered large, “today, nobody really thinks about it,” says Sorrels.

Granted, building costs are considerably less with the industrial giants, but it’s a “double-edged sword,” says the Panattoni executive. “You’ve got more exposure because you’ve got more space up.” Risk building has been replaced by build-to-suits for the most part while everyone waits for a nationwide economic recovery.

It’s a true Catch-22 since the fast comes at a time when construction costs are hovering between $15 per sf and $18 per sf for a 250,000-sf plus distribution center shell. Still, a vacant or near vacant building is a cross to bear so more and more developers are downsizing until there’s a market correction. Sorrels says the one million sf-plus buildings will come back with time simply because it’s the best way to maximize coverage and reap benefits of lower construction costs.

Houston doesn’t have the same problems as Dallas-Ft. Worth, says Stephen H. Jaggard, president and CEO of Dallas-based Vantage Cos.’ Houston team. The state’s southern metropolis is more local and regional distribution than national. The average per tenant distribution demand is 50,000 sf in comparison to the DFW average of 100,000 sf. One of the city’s largest facilities in some time has just come to market, a 650,000-sf project by Dillard whereas that’s a pretty commonplace size to be found in the DFW region.

With Houston’s predilection for smaller buildings comes higher construction costs, explains Jaggard. Hard costs for shell construction, excluding land, right now is riding at $20 per sf to $22 per sf. Still, developers remain stalwart players in the unusually brisk Houston economy. “There are projects being completed now,” Jaggard says. But, a breathing period is right around the corner as those projects deliver. “I don’t think you’re going to see many new starts,” Jaggard predicts as he talks about the economy in general.