Economy
Dallas/Fort Worth (DFW) employment continued to grow modestly, increasing 0.8% year-over-year (YOY) to 4.3 million.
Dallas Fed surveys of Texas manufacturing and service firms indicated mixed results in June, with slowing activity for manufacturing firms and accelerating growth in the service sector. Uncertainty, mainly driven by geopolitical events, has improved significantly over the past three months and fallen below average levels. Firms in both sectors expected growth in employment and capital expenditures over the next six months, indicating generally favorable conditions for commercial real estate. The Logistics Manager's Index, a key indicator of national supply chain conditions, registered the highest rate of expansion since 2022, which managers expected to continue over the next 12 months.
Demand
Leasing activity continued its record pace, accelerating 3.9% quarter-over-quarter (QOQ) to reach 20.5 million square feet (msf). Year-to-date (YTD) leasing totaled 40.3 msf, the strongest first half of the year on record. Similarly, new commitments signed over the past 12 months totaled 72.1 msf, a new all-time high that eclipsed the previous record set in 2021. Requirements remained broad-based across 3PL, manufacturing, eCommerce, and data center-related suppliers and servicers. 28 "big box" users over 500,000 sf have leased 23.0 msf over the past 12 months, accounting for 31.9% of newly leased space.
Recent leasing momentum began translating into strong occupancy gains in the second quarter. Quarterly net absorption reached 9.0 msf, driving the YTD total to 13.6 msf and matching pace with new supply, which also totaled 13.6 msf YTD. Periphery "big box" submarkets lead the market in YTD net absorption with Alliance (3.9 msf), East Dallas Suburbs (2.4 msf), South Dallas (2.0 msf), and South Fort Worth (1.8 msf).
Cushman & Wakefield Research expects robust leasing to continue driving absorption through 2026. The DFW market entered the third quarter with an additional 20.0 msf of net absorption teed up between known move-ins and move-outs, which would increase 2026 year-end absorption to 33.7 msf, the strongest performance since 2022.
Supply
With demand and supply balanced, overall vacancy ticked down to 8.1%, a decline of 20 basis points (bps) QOQ and 110 bps YOY. Vacancy improved most dramatically in the East Dallas Suburbs and South Dallas submarkets due to absorption by large users, falling 12.8% and 6.6% YOY, respectively.
Warehouse/Distribution vacancy has also fallen 140 bps YOY to 9.1%. Mid-size (150,000-499,999-sf) buildings were the only size segment where vacancy remains above 10.0% due to the number of recent deliveries in lease-up. On the other hand, vacancy in "big box" buildings over 500,000 sf has dramatically tightened to the lowest levels since 2022. The South Dallas submarket—where vacancy has averaged 15.5% over the last 10 years due to oversupply—is on pace to achieve a vacancy rate of 6.4% by year-end 2026, the lowest level since 2007, due to large users such as DHL, Logistics Plus, and T1 Energy.
YTD deliveries totaled 13.6 msf, causing construction activity to inch down to 29.8 msf or 2.9% of stock. Build-to-suit projects continued at an above average pace, totaling 11.6 msf or 38.8% of construction activity, while speculative construction decreased slightly to 18.2 msf. In addition, site work was underway on an additional 16.9 msf of new inventory at the end of the second quarter.
Cushman & Wakefield research expects vacancy to continue improving: completions may total approximately 32.9 msf by year-end 2026, while known move-ins and move-outs yield net absorption of 33.7 msf or higher over the same period. With demand slightly outpacing supply, DFW vacancy may fall to 7.9% or lower by year-end, or 90 bps above the 10-year average.
Pricing
Asking rents reached a new high of $9.19 net per square foot (psf), growing by 4.0% QOQ and 13.2% YOY. A dearth of "big box" spaces which quote the lowest rates contributed to stronger growth in the market's weighted average rent. At the same time, both asking and contractual rents increased where competing vacancy was near or below the long-term average, which may indicate that landlords are shifting from a "price taker" to "price maker" position in the market. Concessions remain favorable for tenants while annual escalations typically range from 3.75%-4.00% to support face rents and asset prices at disposition.
