So where are we now? Denver just experienced an above average
absorption year— 3. 6 million square feet recorded—matching many
pre-recessionary record years. And, as such, vacancy declined to a
better than healthy 7. 1 percent. Vacancy below the 8. 5 percent range
generally signals a balanced market, and is historically the hinge
point for speculative development. This is spurring upward rent pressure justifying the cost of new construction, resulting in 1,384,000
square feet of user or build-to-suit construction over the past
In Denver a grand total of five vacant class ”A” spaces over
100,000 square feet are available, however, deals are circling on
two of these buildings. Yes, that's it. Essentially, availability consists of three Class “A” spaces over 100,000. With no new speculative product since 2008, the market is simply running out of space.
Additionally, there has been a slight occupancy gain from removals
as obsolete buildings are refurbished or are removed from the market
as the product adapts use and redevelops as mixed-use or demolished for light-rail construction. It would be a severe understatement
to say that the market is constrained.
"This stability is why industrial
product has become the
'darling' asset class for
A Stalled Market
Currently, healthy pricing of both leasing and investment deals
today combined with continued demand and lack of product create an environment ripe for speculative development like many
other inland secondary markets. Assuming a continued economic
recovery in 2013 and 2014, albeit slow, new deliveries will easily
pick-up for both build-to-suit and speculative space. As rental rates
stabilize and vacancy levels fall in many markets, users, developers,
and lenders are slowly becoming more comfortable with ground-up development. However, conservative lending for the next 24
months requiring large equity commitment will all but shut out the
local and regional developer.
Turn on the Spec Spigot!
In order to be competitive, a market must offer critical mass of product and variety. Currently, the user and build-to-suit market is growing because there are simply not any viable options for space. The
Denver market is almost stalled. “Build it and they will come” is a
self-fulfilling prophecy, or in Denver’s market, more of a prediction.
There is hope that Denver’s growing user base of 220 million
square feet currently underserved will be able to find new facilities.
Majestic Realty is dusting off plans for a 500,000 square foot building and Prologis has a near permitted 345,000 square-foot building. Lauth/GE are starting to rattle, but the most recent, encouraging
news is the announced 700,000 square-foot, three building project
by United Properties at Enterprise Business Center in Stapleton
which is set to break ground this year. We predict that the United
Properties project will be hugely successful and pave the way for
additional industrial development, which is greatly needed!