With 5 consecutive quarters of positive absorption in the Denver Industrial Market, it is hard to argue that we are stabilizing and poised for further improvement in the market fundamentals. As we highlighted in our last report, the budding medical marijuana industry was the source of the spike in Q2 absorption. The continued positive absorption in Q3 is an encouraging sign that the industrial market does not require "medication" to survive the national economic downturn.
Tenants are hunkering down, making due with the space they currently occupy with short-term renewals; while a few smart owner/users are utilizing attractive SBA loan programs and making deals in a relatively stagnant market. All speculative construction remains on hold and developers are beginning to advertize “permit ready” projects and are actively pursuing the few build-to-suit projects in the market.
The sale of the Rocky Mountain Business Center by Principal set the water mark for multi-tenant industrial transactions at an 8.3% CAP Rate at $57/SF. This was one of the first concrete examples in the Denver market that, like the rest of the country, money is chasing Class A investment opportunities. By Class A we mean either Class A construction or Class A tenant mix and location.
It is still common belief that job creation is what will eventually be the engine behind a stable commercial real estate industry. A large portion our industrial market relies on the homebuilding industry and that cannot recover until people are secure in their jobs and able to obtain financing for new homes.
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