Denver’s Industrial Picking Up Pace

Denver’s economy continues to flourish and draw investors and young professionals to the area.

As Denver’s economy continues to flourish and draw investors and young professionals to the area, its industrial sector is experiencing an imbalance between supply and demand. The market is currently experiencing slow and steady growth, though available quality space is scarce, causing rental rates to climb.

Denver Industrial Market - Construction Activity vs. Absorption - 2010 to YTD 2015

Denver Industrial Market – Construction Activity vs. Absorption – 2010 to YTD 2015

Recent data collected by CBRE shows there is increased demand for industrial space from key sectors such as logistics and transportation, distribution, and food and beverage manufacturing. However, speculative development remains scarce, and investors have to compete for limited available quality space. Only one speculative building was delivered in the first quarter of 2015—the fully-preleased, 392,425-square-foot, Class A spec warehouse facility at Stapleton Business Center North in the Airport/Montbello submarket. Nonetheless, pre-leasing activity remains elevated and more projects are in the pipeline for delivery in the next quarters. According to CBRE research data, there are 498,750 square feet of space under construction in the Southeast submarket, and 480,000 square feet in North Central Denver. Overall, the Denver market recorded more than 2.7 million square feet under construction in the first quarter.

Transaction volume in the industrial sector totaled $119.3 million, with over 2.4 million square feet trading hands in Q1. The largest transaction of the quarter was ADC Assets LLC’s purchase of DCT Industrial’s 689,557-square-foot portfolio for $46.6 million. According to CBRE, sales activity in the sector is mostly driven by large portfolio transactions and recapitalizations, although demand is increasing for build-to-suit and build-to-own facilities. Minneapolis-based Opus Group recently completed the 85,000-square-foot build-to-suit Charter Communications Technology & Engineering Center in Englewood, Colo.

Denver Industrial Market - Vacancy, Availability and Absorption - Q4 2013 to Q1 2015

Denver Industrial Market – Vacancy, Availability and Absorption – Q4 2013 to Q1 2015

Availability and vacancy rates remained low in Q1—4.7 percent direct vacancy rate in central Denver, 6.8 percent in Southeast Denver, and 4.8 percent in Aurora—as the market experienced positive net absorption for the 20th consecutive quarter. The availability rate dropped 11 basis points year-over-year to 6.5 percent, according to CBRE data. Rental rates have gained 11.3 percent year-over-year, due to increased demand and scarce available space.

Denver’s industrial market is expected to experience positive growth in 2015, as the booming economy and job growth continue to draw investment in the region. The city has been named one of The Best Places for Business and Careers in 2014 by Forbes Magazine.

 

Charts courtesy of CBRE