Denver Industrial Market Report - Midyear 2013

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

Commercial Construction in Denver - Photo Update

It's incredibly exciting to see all of the new developments that are in progress all across Denver spanning the office, retail and industrial sectors. Below are a few pictures that I took over the last week or so of significant projects:

Cherry Creek Office & Retail
215 Saint Paul Street, Denver

16th Street Mall - Office, Multifamily, Retail
16M - 16th & Market Street

 

 

Union Station - Office and Retail
One Union Station - 16th & Wynkoop St.

Union Station Redevelopment

ProLogis Industrial Speculative Development
390,000 SF - 56th Ave & Havana Street
Breaking ground begins with removing an old Stapleton Airport runway!

Interstate Warehouse Expansion - Cooler/Freezer
Stapleton Business Center

Majestic 500,000 SF Speculative Industrial
Majestic CommerCenter - Aurora

10 Highlights from the NAIOP Mid Year Forecast Breakfast: Here We Grow Again

Yesterday I attended the NAIOP Mid Year Forecast Breakfast held at the Marriott City Center in Denver. With over 300 commercial real estate professionals in attendance, the overall sentiment was very upbeat and optimistic that the Denver commercial real estate market should see continued improvement across all sectors for the unforeseeable future. Below are a few highlights from the panelists.

Office - Doug Wulf, Cassidy Turley Colorado 
1. Use imagination and innovation to create new or revitalize old projects.
2. The health of the Denver office market hinges on job growth. Denver currently ranks 8th in the US for job growth in part because of our diversified economy.
3. "Millennial's" have a voice in where companies locate. The current focus is on location and amenities which have showing to promote productivity. Companies will pay 10-30% more for an edgy and modern building.
4. The aging population in the US is leading to a proliferation of medical office properties.

Industrial - T.J. Smith, Colliers 
5. The investor demand for industrial property is unprecedented. CAP rates in the low 6's for institutional grade and mid 8's for properties with deficiencies.
6. Quality inventory is very low, leasing concessions are down it is shifting to a landlords market.
7. Multiple spec developments are already underway however current lease rates do not fully support development costs, especially on projects under 100,000 SF.

Investment - Brad Lyons, CBRE
8. There is a wall of capital pursuing national investment deals which is putting continued downward pressure on CAP rates. As a result of the recent jump in interest rates, there has been a slight pullback in interest in non-core assets.

Land - Eric Roth, CBRE
9. The SFR land market is very strong with more builders entering the market instead of PE firms which were the norm in the recent past. Construction costs are up and access to trade labor is very tight.
10. Denver has a big renter pool which should be able to absorb all of the product coming online. Approaching an oversupply of projects.

 

Well it has been a while since I actively updated this blog but I am recommitting myself to keeping it current and proving my thoughts on both the Denver and the national commercial real estate market. My apologies for the hiatus and hopefully you will find the forthcoming posts of interest and relevance. Thanks!

Denver Industrial Real Estate Market Report - 4Q2010

The Denver Industrial Market ended the year with a total positive absorption of 3,412,339 SF and a total vacancy rate of 7.7%. This consistent positive absorption over the past 6 quarters, resulting in a 1% decrease in the vacancy rate since 2Q2009, is a strong indicator that the Denver market remains healthy and should continue its slow and steady recovery in 2011.

The majority of tenants and users continue to stay put in their existing facilities as a result of the lingering uncertainties surrounding the national economy and landlords aggressively working to retain tenants. However, we are seeing fewer downsizing companies and sublease spaces coming to market signaling improved local fundamentals.

Despite the slight uptick in commercial mortgage rates and SBA fee waivers expiring, we anticipate increased user-building sales in 2011 as property owners remain motivated to dispose of listed properties and the available for lease space continues to dwindle. In addition, the lack of new construction for the foreseeable future, condemnation of properties along rail lines for RTD projects, and pent-up demand from the past 24 months should continue to put downward pressure on the vacancy rate and in turn push lease rates and sale prices higher.

We also anticipate additional investment sales in 2011 as the capital markets continue to improve for well located and stable investment grade opportunities. Many would-be sellers and buyers of investment properties have remained on the sidelines since 2009 waiting for signs of life in the investment market and favorable access to capital.

For the full 4Q2010 Office & Industrial Market Report click here:
http://www.bitzerrep.com/pdf/BitzerNewsletter2010Q4[BW].pdf

3rd Quarter Denver Industrial and Office Market Report

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.

Click here for the full newsletter: http://www.bitzerrep.com/pdf/BitzerNewsletter2010Q3.pdf

Denver Industrial Market Report

Bitzer Real Estate Partners
1st Quarter 2010

The first quarter of 2010 showed signs of improvement in the Denver Industrial Market with an increase of both sales and leasing activity in most submarkets. This activity is slowly translating into signs of continued decreasing vacancy rates and increasing absorption.

Lease rates declined only slightly as rent abatement is common, but we feel the bottom is near as larger landlords breathe a sigh of relief as vacant space is absorbed. In many cases however, the active tenants in the market are out shopping for ammo to strike renewals with their existing landlords. These Tenants are well aware of the opportunities that exist to strike a great deal or move to higher quality space.

The main driver for the sales market is that banks and lending institutions are starting to open the coffers and deploy some of their dry powder. Lending parameters are still stringent but those that do get through the gauntlet are enjoying low interest rates and reasonable loan-to-value requirements. Surprisingly, the deluges of distressed industrial assets have yet to come to the market. This is largely based on the aforementioned improvement in the capital markets and the fact that banks really cannot afford to take these properties back and are pursuing workouts with their borrowers.

Also worth mentioning is the improvement that REIT stocks have made in 2010. Their underlying strong fundamentals and balance sheets, and the confidence that Wall Street is displaying in the sector, is yet another indicator that 2010 is heading in a positive direction.

For the full Market Report including commentary on the Denver office market, please visit: http://www.bitzerrep.com/pdf/BitzerNewsletter2010Q1.pdf