The Denver industrial market remains in expansion mode. Driven by robust employment growth and the rise of e-commerce, tenants continue to seek out more space to accommodate demand. The market absorbed 5.7 million SF in the last 12 months.
Developer interest has ramped up in recent years, and the amount of industrial space under construction is near record levels. Roughly 8.1 million SF is in the pipeline, which will expand the market’s inventory by 3.0%. Only 22% of the space under construction is leased, which ranks among the lowest preleasing rates of any major markets across the country. While this pace of supply growth is unlikely to dramatically shift the market in tenants’ favor, the influx of unleased space will likely cause industrial vacancies to rise at least modestly over the next few quarters.
The impact of newly built industrial space will vary across the market. Areas with already high availability rates and a slew of new construction project deliveries on the horizon, like North and Northeast Denver, could see leasing timelines extend further as tenants have more options to choose from. The East I-70 corridor, an area that has long served as Denver’s traditional industrial node, commands the lion’s share of construction activity. However, with a comparatively lower availability rate and the most impressive absorption averages in the market, this area has more runway before tenants gain bargaining power in lease negotiations. Still, opportunities for further development exist in some areas of the market. West Denver, the first stop for imports transported from west coast ports, holds one of the lowest availabilities across Denver and a limited construction pipeline.
Amazon has made an outsized impact on the local market in recent years and currently occupies over 6.0 million SF across the region, 2.5 million SF of which was leased in the last two years. The e-commerce giant is slowing its expansion plans nationwide, and even returning industrial space to the market in some instances. Headwinds like rising inflation, higher interest rates, and emerging signs of consumer weakness are driving these decisions. Most of the spaces returned by Amazon across the U.S. consist of less-efficient, under 100,000-SF footprints.
Strong rent growth and sustained demand in the Denver market have captured the attention of investors. Investors are willing to pay top dollar for newly delivered industrial product even without a tenant in place, allowing the buyer to capitalize on current market demand while avoiding potential construction risks brought on by supply chain issues. The addition of high-end industrial inventory is helping to drive investment prices higher.
Source: CoStar