Metro Denver's industrial-space landlords are smiling after a strong Q1 that looks to continue in 2014, according to CBRE Group Inc.'s latest MarketView report.
Vacancy rates stood at 4.6 percent in the quarter, down 0.4 percent from a year earlier, the report said. And lease prices are finally climbing towards pre-recession levels, with Q1 rates up 9 cents from the previous quarter, to $6.19 a square foot.
Tenants leased 177,000 more square feet than was vacated in the first quarter, the 16th consecutive quarter of positive net absorption. And there's 3.1 million square feet of new industrial space under development in the area to help meet the demand.
“We’re seeing local, regional and national companies all expanding here,” said Mike Camp, senior vice president and industrial specialist with CBRE.
Much of the growth is along Interstate 70, including projects under construction by San Francisco-based Prologis Inc. and Minneapolis-based United Properties as well as one at Majestic Commerce Center in Aurora.
“Notably, Q1 2014 saw further speculative development break ground as tenant demand strengthened across the market,” the report said.
One speculative project includes a 66,350-square-foot flex research and development building at 1900 Cherry at the Colorado Technology Center in Louisville.
The highest lease rates were logged in Boulder at $9.41 per square foot, with the lowest average coming in at $3.88 in the north metro submarket.
The lowest vacancy rate, as always, was central Denver at 1 percent (there’s only 13.5 million leaseable square feet), and Longmont recorded the highest average vacancy rate at 17.5 percent.
“Industries driving tenant demand remained consistent with food production and distribution, construction and third-party logistics leading the way,” the report states. Vacancy rates should continue to decline the rest of the year “even with the surplus of construction activity.”
As far as investment activity, “Denver firmly rooted itself on national investors’ radar in 2013 and 2014 [and] should continue to see elevated activity,” the report states.
Buyers grabbed 1.1 million square feet of industrial space in Q1, far exceeding the 395,000 square feet that reached the closing table in Q1 2013. That “drove down cap rates notably, to pre-recession levels.”
The biggest sale of the quarter was the purchase by Newport Beach, Calif.-headquartered TA Associates Realty of an 18-building portfolio that included more than 900,000 square feet of industrial space for $36.9 million, or $40.80 per square foot, from seller Invesco Realty Advisors of Dallas.
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