If you have driven around the Dallas Fort Worth area at all, you have certainly seen all the cranes in the air at construction sites. It seems like there is a new building announced every few days. That got me wondering about how many buildings are really under construction. Announcements are easy and frequent. Groundbreakings are a little less common. I wish I had a dollar for every announced building that never got built.
So I did a search in Xceligent, a commercial real estate database which tracks all commercial buildings in DFW and lots of other markets, to see what the real numbers are. New construction is put into three categories – Under Construction, Planned and Proposed. Here are the definitions of each per Xceligent:
- Proposed – Properties that have been announced, but are still in the preliminary stages of development. Financing, permits and other items have not yet been obtained.
- Planned – Properties that have the necessary financing and permits in order, but the developers have not yet broken ground at the site, and construction has not yet begun.
- Under Construction – Properties that have begun construction as evidenced by site excavation or foundation work, or that have ongoing construction.
So projects Under Construction are definitely going to happen. Those in the Planned category are highly likely, but could still be scrapped. Buildings in the Proposed category could be built, but it will probably be in the future somewhere or won’t occur unless a big tenant comes along that wants it.
According to Xcelignet, there are a total of 13 million square feet (SF) of properties in the development pipeline (all 3 categories). Only 8% of these buildings have been pre-leased. Absorption, the net change in occupied SF which is the best measure of demand for space, was 2.6 million SF for the first half of 2015. So that’s 5.2 million annualized. So 13 million in development doesn’t sound so scary.
If we remove the Proposed category since that is questionable, the total in the pipeline drops to 9.2 million SF with only 11% pre-leased. If we remove the Planned to look at the Under Construction alone, there are only 3.9 million SF underway with 18% pre-leased.
The other interesting point in all of this is that these numbers are only for multi-tenant buildings and don’t include the single-tenant development for the likes of Toyota, Raytheon, the FAA, 7-Eleven, and others. If you add those in, the total Under Construction as of June 30 was 8.5 million. Of course, a large percentage of those would then be considered to be pre-leased since all the corporate campuses are build-to-suits with signed leases before they broke ground.
So overall, the market is still pretty healthy because the amount of new construction is not getting too far ahead of demand. That’s also why we’re seeing rental rates going steadily up.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.