Mike McElwee, an executive vice president at Hughes Marino’s recently launched Dallas location, has been a part of the DFW industrial real estate market for more than 25 years. In that time, he’s seen numerous cycles of ups, downs and middle-of-the-roads. In his estimation, the building overdrive that took place during the pandemic was, of course, unsustainable and has since slowed to a more normal—but still active—rate. Here he talks about the kind of activity he sees now, what the challenges and opportunities are for tenants (Hughes Marino is a tenant-rep firm), and where growth is happening in the Texas market.
Give us a baseline: What’s the current state of industrial real estate in Texas right now?
As always, we have a mixture of industries. In Houston and along the Gulf, you have a lot of oil and gas, and the Port of Houston with shipping and freight. Austin has become the Silicon Valley of the South with continued diversity of the companies expanding there, from Tesla to AI technology firms. North Texas is home to a lot of logistics firms, as well as production and light manufacturing and assembly. It’s not just one versus the other, but a really balanced scene. For Hughes Marino and our particular business, we’re looking to assist big and small companies alike. With our broad range of tenant services, we can be a resource for them to manage all their facility needs across the country.
How tight is the market for tenants and buyers right now? What are the challenges?
Even though things have cooled off, it’s still hot in Texas! We have one client looking for a single tenant building, 30,000 to 50,000 SF, and you can’t find them. That’s reflective of how much activity we have seen in the last few years with companies growing and thriving. In many cases, users looking for 50,000 to 125,000 SF of quality space has become difficult. Whereas, if you’re looking for 300,000 to 500,000 SF, there are many more options to choose from.
So where are the opportunities?
Well-capitalized developers all want to find great land sites in the core of the metroplex, but those are few and far between. So, other markets—further out—are seeing a lot of activity. There’s an industrial park near Corsicana, south of Dallas, that’s been getting a good deal of attention. Out to the east side, Mesquite and Terrell are sprouting up new projects. Other companies are going north of Denton towards Sanger or Gainesville, where some decent-sized parks have broken ground with tenants already committed. Because of the lack of available land in the core markets—along with population growth and traffic—tenants are willing to go further out. The same conversations are happening elsewhere. Instead of being in Austin, companies might consider Georgetown or Temple.
Is that part of what’s creating so much industrial activity in and around Fort Worth?
While all of DFW has continuously enjoyed the benefits of the area’s economic growth, Fort Worth specifically seems to be at the top the ladder right now. There’s been tremendous growth in Tarrant County, both in population and business, and all the surrounding suburbs are expanding with single- and multi-family residential, mixed-use commercial and industrial. The city’s pro-business climate has paid dividends with landing several new projects, including Texas A&M’s new research campus. And it’s not just one area that’s seeing the action. There are different districts—the Arts District, the Medical District, West 7th, TCU, Sundance Square and the Stockyards—where Fort Worth continues to execute on this live-work-play growth strategy.
What does Hughes Marino offer to help industrial clients?
I think our value proposition is the caliber of service that we consistently deliver. Clients meet with us and quickly realize it’s not just me or another broker here. It’s everybody in the Hughes Marino office, from the broker to research, in-house subject matter experts that create a complete real estate strategy, to the operations team members, all the way to the owners. Clients are impressed with the “team” responsiveness. It’s not just something in our brochure, it’s what we live and deliver every day. Our entire team is dedicated to helping our clients crush it. For industrial, we have a holistic life cycle for projects, helping with site selection, transportation analysis or business incentives on the front end, to monitoring market dynamics and providing business intelligence throughout the duration of occupancy. For instance, in working with a regional HDQ for an international manufacturer, we are providing consulting services to optimize their layout and throughput for maximum efficiency; thereby reducing their long-term operating costs in addition to real estate expense. Hughes Marino offers end-to-end management to help make each project a phenomenal success.
Crystal Ball Time: What does the future of industrial look like for North Texas?
I’ll go on record with this because I believe it. We talked about how building went into overdrive during COVID, and how that’s now slowed down to a more healthy, sustainable pace. So now we have high interest rates and not as many buildings going up. The space we have available will soon be absorbed and—in certain submarkets—we’ll see a pinch on availability. In the next 12-18 months a lot of the existing space will be leased or sold. So, are we going to see rental rates drop? Year-over-year rent growth will slow, but I don’t think lease rates are going to drop. And because of that, in the next 12 months developers will start to put up more buildings to meet the continued demand.
So, while a year ago, it was a landlord’s market, today…not so much?
I will say it’s a much more level playing field now. But as always, tenants need to be prepared to execute when the opportunities present themselves, and that’s what Hughes Marino can help them do.