Denver, CO Industrial Market Report

Denver Transaction Volume | (5,000 – 100,000 SF)

61 Properties Sold in Denver,CO
Average Sale Price: $3,560,000
Sales Volume: $192,940,000
Average Sale PPSF: $172/SF21,045
Average SF: 21,045

Significant Sales

Focused Metrics | (5,000 – 100,000 SF)

Quarterly Sales Volume
Q3 2024 Volume: $196,439,327
Q2 2024 Volume: $217,160,817

Although sales volume in Q3 2024 fell by -14.88% compared to Q2, it’s worth noting that volume is up 10.47% relative to the average of the previous four quarters. With 40 more new listings coming online in Q3 compared to the previous quarter, an increase in sales volume is expected in the coming months as more inventory becomes available and borrowing costs decline.

Buyer and lender sentiment has grown more optimistic following the 50 basis point rate cut in September, boosting confidence in underwriting and leading to an anticipated rise in transactions. Although rate cuts usually don’t produce immediate market shifts, the positive reaction is expected to gradually create a more active market. This will likely result in a narrower bid-ask gap between buyers and sellers and improved market sentiment.

Market Sale Price Per SF
Q3 2024 Market Sale Price Per SF: $168/SF
Q2 2024 Market Sale Price Per SF: $180/SF

Pricing has eased slightly from the previous quarter, with the average price per square foot (PPSF) down by 6.66%. However, the bid-ask gap is starting to close, as many properties on the market have undergone price reductions. This trend suggests a clearer alignment between market pricing and buyer/seller expectations. The influx of new inventory signals more competitively adjusted pricing on a PPSF basis. As availability increases, sellers will need to adopt more realistic pricing strategies as buyers gain leverage with more options available. This dynamic sets the stage for a more active market, with optimism that sales volume will rise as these adjustments continue to take hold.

Vacancy & Asking Rents
Q3 2024 Vacancy: 5.60%
Q2 2024 Vacancy: 5.15%

Q3 2024 Avg Asking Rents: $13.60/SF
Q2 2024 Avg Asking Rents: $13.68/SF

Higher vacancy rates have led to a decline in rent appreciation, with Q3 showing a 5.60% vacancy rate, up 43% from this time last year. In addition to increased supply in recent years, this stems from tenants facing economic uncertainties, prompting them to be more conservative with their leasing decisions. However, rent growth is projected to rebound in 2025-2026, driven by improved interest rates, the election passing, and a significant decrease in new construction, which will tighten supply and boost occupancy levels in Denver.

As a result of higher vacancy rates, rental appreciation has plateaued compared to prior years, with year-over-year rent growth at only 1.9%, down from 5.3% this time last year. This slowdown indicates that many owners are focusing on sustaining occupancy levels, even if tenants are paying below market rates, thus creating opportunities for investors to add value to underperforming properties.

Under Construction & Construction Starts | (5,000 – 100,000 SF)

Q3 2024 Under Construction: 590,068 SF
Q2 2024 Under Construction: 848,586 SF

Q3 2024 Construction Starts: 63,271 SF
Q2 2024 Construction Starts: 53,520 SF

While construction starts are up quarter-over-quarter, the trend has sharply declined compared to last year, with 2024 averaging only 74,000 square feet per quarter. Elevated construction debt and material costs have continued to sideline many developers, as smaller projects often don’t yield sufficient returns. However, the 50-basis point rate cut in September along with continued rate cuts on the horizon is expected to enhance construction lending in the quarters ahead.

While many projects in Denver were delivered in the second half of 2023, the number currently under  construction has noticeably declined. Over the last three quarters, we have observed an average quarterly decrease of 21.16% in projects under construction. Smaller developments continue to pose challenges for developers due to the effort and costs required to achieve minimal yields. Nonetheless, this is expected to lead to increased occupancy levels moving forward as demand will look to outpace supply again.

Conclusion
The market is showing signs of stabilization following the FOMC’s recent 50 basis point rate cut, which has fostered renewed optimism. However, the Denver industrial sector still faces challenges, including increased vacancy and slower rent growth. Tenants are exercising caution with their leasing decisions and have more options at their disposal.

With that said, a significant decline in new construction indicates that supply will begin to tighten in the quarters ahead. With an 86.5% probability of a 25 basis point rate cut in November (according to the FedWatch Tool), buyers’ purchasing power will continue to improve, helping pricing expectations rebalance and increase velocity. Additionally, a steady increase in new listings quarter-over-quarter will likely boost sales volume, as sellers will need to meet buyers with realistic pricing to compete in a more crowded market.

These factors together create a promising outlook for greater velocity and sales activity in the year ahead, paving the way for a more dynamic and competitive market environment.