The Denver Industrial Market continued its recovery in the 2nd quarter of 2013 and is demonstrating signs of prolonged strength. The three highlights of the quarter were: 1,850,000 SF of positive absorption; almost 600,000 SF of speculative construction broken ground on; and a $0.20 increase in the average quoted lease rates. With the total industrial vacancy rate falling 0.3% to 7.3%, Denver is well below the national industrial vacancy rate of 8.5%.
Modern industrial space (24’+ clear height, large truck courts) remains scarce in all size ranges causing many prospective tenants to remain on the sidelines or forego contemplated moves and/or expansions altogether. The total warehouse market is now at a 5.8% vacancy rate with the East I-70 submarket, the largest sub market, at 6.4%.
Developers have been waiting for sustained increases in rental rates to justify speculative construction. While continued increases in rates are still needed to further justify new projects, especially any under 200,000 SF for economies of scale, developers with a low land basis are rolling projects out in an attempt to stay ahead of the curve. Majestic Realty was the first to break ground in the NE submarket with construction starting on a 500,000 SF building within the Majestic Commercenter, while Prologis is not too far from putting a shovel in the ground at Stapleton Business Center North (391,000 SF). The Bradbury Companies broke ground in the Centennial Industrial Market on a 98,000 SF speculative building this quarter as well. The higher average rental rates in the south submarkets helped justify the smaller building size in this case.
At the end of the quarter interest rates increased by approximately 100 basis points causing a ripple effect of concerns throughout both the residential and commercial real estate markets. Most analyst agree that interest rates really only have one direction to go and that is up, how quickly they increase is yet to be seen. We expect the Fed to closely regulate increases as to not abruptly stall the momentum in the real estate markets, and the overall economy. Many prudent investors and owner/users are seeking out the longest term money as possible to hedge the anticipated higher rates.
For the full Industrial and Office Market Report please visit: Bitzer Newsletter
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