Q2 2022 Industrial Real Estate Report: Denver, CO
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Denver’s industrial real estate sector remains optimistic within an evolving national marketplace.
With over 13 million sq. ft. of industrial space either under construction, or currently being renovated, developers are focusing on larger projects during 2022 to meet tenants’ space requirements in today’s marketplace.
Currently, Colorado’s 10 Fortune 500 companies all call Denver home. ??These companies are Arrow Electronics, Dish Network Corporation, Qurate Retail, Ball, VF, DaVita, Newmont, Liberty Media, DCP Midstream, and Ovintiv.
General Area Overview & Demographics
As Denver businesses continue to expand, the need for industrial space keeps growing. Conversely, office real estate vacancies continue to grow in the light of a growing remote workforce.
The need for industrial space to store clothing, furniture, appliances and countless other goods is at an all-time high, fueled by the pandemic and the growth of online retailers like Amazon.
Since more investors are following the trend to industrial real estate, what does Denver offer them?
Summary of Denver Industrial Real Estate Performance in Q2 2022
The leasing and sales sectors within the industrial real estate market took entirely different directions, mainly due to purchases and move-outs by several nationwide retailers.
- For the first time in six quarters, overall industrial vacancy in Denver increased, rising to 6.0%. This was after four quarters of decreasing vacancies.
- The increase in vacancy rates was a direct result of Costco’s vacating 1.3 million sq. ft. in the Northeast submarket.
- The move affected Denver’s overall industrial leasing rates to the point that, had Costco not vacated, the overall vacancy rate for second quarter 2022 would have seen a decline to 5.5% instead of the increase.
However, sales within the Mile High City’s industrial section took an opposite course, with the largest sale totaling $252 million.
Next, we’ll look how these numbers have affected leasing and sales rates in Denver.
How much is average Denver industrial area real estate?
For the fifth consecutive quarter, rental rates for industrial space in the Denver market rose, albeit only slightly.
- Direct asking rates increased by $0.07 per sq. ft. to an average of $10.50 per sq. ft. on a triple net (NNN) basis.
- Overall NNN rates increased by $0.01 per sq. ft. to an average of $10.40 per sq. ft.
With $532 million in sales volume recorded, purchase numbers during the second quarter 2022 more than doubled the volume seen during the preceding quarter.
Purchase & Leasing Activity
In addition to the Stockbridge Capital Group’s multi-million purchase transaction, the industrial real estate market saw several other notable purchases, including the following.
- PepsiCo sold 478,000 sq. ft. on 30 acres of land to Stoltz Real Estate Partners for $158 million. This purchase will become a redevelopment project after Pepsi occupies their new build-to-suit (BTS) facility near the airport.
Leasing activity within Denver’s industrial real estate market nearly doubled when compared to 1Q 2022’s numbers.
- The second quarter of 2022 represented a substantial increase in Denver’s overall industrial leasing activity, recording 4.1 million sq. ft.
- Year-to-date (YTD) activity of roughly 6.5 million sq. ft. indicates that overall leasing activity in 2022 will be similar to recent annual totals.
- However, 2022’s leasing activities are expected to fall short of 2021’s record-breaking year which recorded 14.2 million sq. ft.
Now we’ll take a closer look at the industrial real estate transactions that made press headlines.
Notable Industrial Real Estate Deals in Denver in Q2 2022
The 2Q of 2022 saw several major industrial real estate transactions finalized.
Coming in at first place: Denver Infill Portfolio, an eight-property portfolio owned by Link Logistics Real Estate.
- The property spans the Denver metro, totaling some 1.34 million sq. ft.
- Stockbridge Capital Group purchased the fully-leased portfolio from Link for roughly $252 million.
In addition to high-dollar sales, several major industrial leases made headlines.
Notable Industrial Real Estate Leases in Denver in Q2 2022
The most notable lease signing of the quarter was Home Depot’s 512,000 sq.ft. build-to-suit (BTS) industrial space at Clarion Gateway Business Park.
Other major leases finalized during 2Q 2022 included:
- Paliot Solutions Group’s 210,000 sq. ft. lease in the Majestic Commercenter.
- Target Corporation’s finalizing a lease of 141,500 sq. ft. space, completing leasing the Broadway Distribution Center, a Class A industrial/distribution building at 6300 Broadway.
- Keystone Tower Systems finalized a 108,937 sq. ft. lease at Building 2 of the 6050 Washington Street building. The Prologis Park Central features a large, Class A bulk warehouse.
Although the city’s industrial real estate developers are planning to break ground on several projects soon, rising costs may continue to cause delays. Here’s what to expect.
New Industrial Real Estate Development Activity in Denver in Q2 2022
The second quarter of 2022 resembled new activity in the previous quarter.
- The most notable completion of the quarter was the 482,700 sq. ft. FedEx build-to-suit in the Northeast submarket.
- A few large projects were delivered, and more were pushed back to the next quarter due to construction delays. However, the industrial construction pipeline continues to swell.
- Currently, there is 10.3 million sq. ft. under construction, 95.0% of which is being developed on a speculative basis.
- All together, second quarter 2022 deliveries recorded a total of 1.2 million sq. ft.
As Denver’s industrial brokers and builders look to the future, what can be expected for the second half of 2022?
Market Forecast for Denver’s Industrial Real Estate Market
Denver industrial real estate fundamentals remain solid and the city remains a favorable market for landlords, brokers, and developers alike.
However, continuing inflation and the rising interest rate environment created by the Federal Reserve may have a negative impact on capital market transactions. This may result in a slowdown in Q3 sales.
The strong leasing this quarter, combined with delayed occupancies from previous quarters, are expected to contribute to future vacancy absorption and higher leasing rates.
As summer draws to an end, here are some final predictions for those following industrial real estate forecasts for 2022 and beyond.
Takeaways for Denver Industrial Real Estate Investors
As vacancy rates and net absorption took hits this quarter due to Costco’s 1.3 million sq. ft. vacancy, rebounds in both metrics are likely, especially when considering the many move-ins scheduled for 2Q 2022 that were pushed back due to construction delays.
Rising inflation and interest rates are concerns for a recession along with a potential housing bubble that may negatively impact leasing and sales activity for the remainder of the year.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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