Northern Colorado Industrial Market Report

Northern Colorado Transaction Volume | 5,000 – 100,000 SF

20 Properties Sold in Northern Colorado
Average Cap Rate: 6.81%
Average SF: 23,652
Average Sale Price Per SF: $150.45/SF
Average Sale Price: $2,814,158

Significant Sales

Focused Metrics| 5,000 – 100,000 SF

Sales Volume & Market Sales Price Per SF

Q3 2024 Sales Volume: $64,253,920
Q2 2024 Sales Volume: $56,935,800

Q3 2024 Sales Price Per SF: $153/SF
Q2 2024 Sales Price Per SF: $155/SF

While overall sales volume in Q3 saw a 12.08% increase from the prior quarter, volume was still down 44.25% compared to the first quarter of the year and down 12.98% compared to the average four quarters prior. The current volume is close to the numbers experienced in the years before COVID-19, signaling a sign of normalcy in the market from the bull run as of late. With that being said, 2024 sales volume is expected to surpass the 2023 total, bringing a sign of optimism in the market that will only continue to grow after the election passes and interest rates continue to drop.

Market Sales Price Per SF in Q3 experienced a slight drop of 1.30% from the prior quarter. The overall trend, however, is more worth noting as the market sales price per sf has now dropped 8.75% from the $167 peak in the second quarter of 2022. Forecasts predict the average sales price per sf to continue declining until mid-2025, before a rising trajectory again. While industrial pricing has softened in recent years, the decline in Northern Colorado is not as severe as the national average and most other major markets, providing stability in the local marketplace.

Vacancy & Asking Rents

Q3 2024 Vacancy: 7.7%
Q2 2024 Vacancy: 7.4%

Q3 2024 Avg Asking Rents: $13.75/SF
Q2 2024 Avg Asking Rents: $13.79/SF

Overall vacancies continue to climb, with a 3.97% increase from the prior quarter. Aside from minor dips, this continues the trend of higher vacancies, which has risen since the Q4 2019 low of 3.1%. Economic uncertainty has been a major cause, as many businesses have hit the brakes searching for new spaces until there is more stability in the debt markets, as well as waiting for the election results. The slowdown in the construction pipeline is expected to help ease vacancy going forward as net absorption increases.

While vacancies have continued to rise, asking rents have stayed exceptionally resilient. Besides a slight decrease of only -0.29% from the previous quarter, asking rents have steadily increased each quarter for the better part of a decade. Asking rents are up 1.39% year-over-year, a decline compared to a 4.70% increase from the previous year, however the slowdown in new construction starts will allow vacancies to soften and give landlords the ability to capture rental appreciation in the years to come.

Under Construction & Construction Starts

Q3 2024 Under Construction: 500,214 SF
Q2 2024 Under Construction: 369,264 SF

Q3 2024 Construction Starts: 130,950 SF
Q2 2024 Construction Starts: 35,714 SF

Projects under construction have continued to decline from the high of 1,299,889 SF in Q1 2022. High construction debt and material costs have continued to be the large contributors involved. While new projects under construction are down -88.85% from the record high in early 2022, the pipeline is up 30.12% from the prior quarter and is experiencing the highest totals YTD thus far.

Similarly, besides from a handful of peaks and valleys, construction starts are down year-over-year and have been steadily declining from the most recent highs experienced in 2021. For industrial properties between 5,000 and 100,000, there are currently 14 projects under construction in northern Colorado, the bulk of which are off the I-25 corridor. Half are still expected to be completed by year’s end, with the other half having completion dates in 2025. For new product of this size, the vast majority are being built from metal or steel construction, as those materials continue to be more cost-effective than their more durable counterparts, such as concrete and masonry.

Conclusion

While we are certainly not out of the neck-of-the-woods yet, the market is experiencing more optimism now than seen over the past 2 ½ years. The bulk of the optimism can be attributed to the Fed’s most recent meeting in September, in which they dropped rates by 50 basis points, the first rate drop in well over 2 years. This is allowing buyers and lenders to have more confidence in their underwriting, after a 525-basis point rate increase from March, 2022 to July, 2023, the fastest tightening cycle in decades. Even though the treasuries have remained volatile in the interim with further speculation of the job reports and recession fears, the market is expected to continue rebounding as more clarity becomes available after the election results and more rate cuts furthering the “soft landing” the Fed has been aiming for.