Northern Colorado Industrial Market Report

Recent Positive Gain for CPPI

CPPI Index

As of June 2024, the Green Street Commercial Property Price Index (CPPI) increased by 0.7% in May 2024, marking the first increase in the CPPI over the last 24 months. The all-property index, which tracks pricing for institutional commercial real estate, has seen a 1% increase so far this year and is currently 21% lower than its peak in March 2022.

Although the CPPI showed its first increase in over two years, the positive gain was very incremental. This does not suggest that pricing is going to exponentially increase; however, it does show a bounce back from the last couple of years. The trend line suggests the market is gradually becoming more stable. Even though +0.7% isn’t a substantial increase, it is a step in a positive direction compared to the prior two years.

Expect this trend to continue into the second half of 2024, as the Federal Reserve announced in their latest meeting that there is a likely chance a rate cut will be seen in the Fall. Even though the rate cut is expected to be minimal, this is a massive milestone as it will be the first rate cut seen in well over two years, with more expected to come in 2025.

Market Stabilization: 10-Year Treasury Comparison

• 10-Year Treasury: Q2 2023 = 3.71% | Q2 2024 = 4.40% (+18.65% increase)

• The 10-Year Treasury was at 4.32% at the start of Q2 2024 and ended the quarter at 4.40%, as it has consistently stayed in the low-to-mid 4% since the start of 2024. This is expected to decline further after the Federal Reserve’s latest update of an expected rate drop this fall.

• Many lenders base their terms on the 10-Year Treasury, which is why staying within a tight range is a good sign. Lenders are more confident in their underwriting when the 10-Year is more predictable and doesn’t show major peaks and valleys.

Northern Colorado Market Overview

Focused Metrics: YOY Change (5,000 – 100,000 SF)

Vacancy:
Q2 2023 6.03%
Q2 2024 7.41% (+22.89% increase)

Northern Colorado industrial vacancies are up 22.89% in Q2 2024 compared to the same time last year. As absorption shows a positive trend and the market sees fewer construction starts, vacancies are expected to decrease gradually. Northern Colorado industrial rents showed an incremental increase of 2.09% from Q2 2023. The market’s overall rent trendline is forecast to grow over several years as industrial demand outpaces new supply.

Market Asking Rent Per SF:
Q2 2023 $13.40
Q2 2024 $13.68 (+2.09% increase)

Sales (5,000 – 100,000 SF)

Quarterly Sales Volume:
Q2 2023 $76.20M
Q2 2024 $56.65M (-25.66% decrease)

Velocity in Northern Colorado decreased by -25.66% from Q2 2023 with the bulk of transactions being more concentrated in the Denver MSA. Although the market saw a spike in velocity during Q1 2024, it has since tapered off in Q2. The discrepancy can be attributed to portfolio sales. Northern Colorado’s industrial sales volume is expected to grow in the quarters ahead, given the much-anticipated interest rate cuts by the Federal Reserve.

Notable Transactions

2425 W I-25 Frontage Rd, Erie, CO (Buyer: Local owner-user)
9,600 square feet on 19.68 acres sold at $5.5M, or $6.42 per land square foot.

450 25th St, Greeley, CO (Buyer: Out-of-state investor)
76,352 square feet on 3.67 acres sold at $1.3M, or $17.03 per square foot.
Former Meadow Gold Dairy plant

4820-4830 Sterling Dr, Boulder, CO (Buyer: Local owner-user)
25,654 square feet on 1.43 acres sold at $5.4M, or $210.49 per square foot.
Sold at a 13.32% discount from previous sale in December 2020

Market Sale Price Per SF
Q2 2023 $161/SF
Q2 2024 $158/SF (-1.86% decrease from Q2 2023)

The average price per square foot in Northern Colorado in Q2 2024 decreased by -1.86% from the same time last year and by 0.63% from Q1 2024. The market’s industrial pricing has relatively stayed afloat from a year ago. Despite an uptick in vacancies, the Northern Colorado industrial market has maintained value. It’s worth noting that owner-users have accounted for the majority
of transactions and continue to pay premium prices for properties that enable them to grow their businesses.

Construction (5,000 – 100,000 SF)

Construction Starts:
Q2 2023 130,280 SF
Q2 2024 35,714 SF (-72.59% decrease from Q2 2023)

Northern Colorado witnessed a steep decline in construction starts from the same time last year. In Q2 2024, construction starts were down -75.59% from Q2 2023. Despite signs of a stabilizing market in terms of pricing and rents, Northern Colorado’s high construction debt and material costs are significantly limiting new development. Construction starts for properties 100,000 square feet and larger are minimal compared to the historic highs seen in late 2022 and early 2023.

Under Construction:

Q2 2023 777,489 SF
Q2 2024 384,264 SF (-50.58% decline from Q2 2023)

In Q2 2024, developments under construction in Northern Colorado showed a -50.58% decline from Q2 2023. This decline was for industrial properties under 100,000 square feet. Although the market’s construction pipeline has recently trended downward, rent growth in Northern Colorado is expected to pick up in 2025. Industrial properties 100,000 square feet and larger experienced similar development declines in contrast to the highs seen in late 2022 and early 2023.

Net Absorption (5,000 – 100,000 SF)

Net Absorption
Q2 2023 -94,241 SF
Q2 2024 101,113 SF (207.29% increase from Q2 2023)

Northern Colorado’s net absorption in Q2 2024 showed a substantial increase of 207.29% compared to the same period last year. This increase is the market’s first positive gain since Q3 2023. While Northern Colorado’s net absorption has been volatile, the recent increase can be attributed to a slowdown in new construction starts. As Northern Colorado’s pipeline for new industrial construction continues to slow, the likelihood of rent growth in the upcoming quarters grows.