Denver, CO Industrial Market Report

The Denver industrial sector is gearing up for a substantial wave of loan maturities in 2024, with approximately $210 billion worth of loans set to come due within the next three years. This year, 27% of the outstanding debt for industrial will be due.

The impact of these impending maturities is expected to be profound, particularly in terms of market dynamics and pricing. With over a quarter of all industrial loans maturing in 2024, we anticipate heightened competition among sellers as more listings flood the market from landlords not being able to refinance. This surge in supply should lead to more realistic pricing in today’s climate, potentially narrowing the bid-ask gap that was observed in 2023.

Both buyers and sellers should be aware of these shifts in the debt market, as they will likely reshape market conditions and investment strategies in the coming year.

Vacancy and Rents

Although vacancy throughout the Denver Metro Area has increased, industry experts can infer that there are two different headlines when comparing big-box industrial vs. small-industrial. Big box industrial, properties over 100,000 square feet, experienced a vacancy rate of 9.2% in the first quarter. When looking at smaller properties on the other hand, the vacancy rate lowers significantly. Industrial properties 20,000 square feet and under have a vacancy at 4.23%, and vacancy for 10,000 square feet is even lower at 3.46%. This can be attributed to most new construction being for properties over 100,000 square feet, providing a safety net for smaller industrial as those spaces remain in high demand with virtually no new supply coming in.

Rental rates have stayed resilient despite fluctuating vacancy rates. Net absorption has been able to catch up with all the new projects completed during the bull rush over the past several years. While the year-over-year rent appreciation may slow compared to years past, rental rates are still expected to grow given the lack of new construction in the pipeline so far this year. The drop off in new supply coming in combined with moderately robust demand is leaving most landlords optimistic about rent appreciation going forward, especially for units 50,000 square feet and under where there is almost no new construction taking place.

Denver Sales Volume

From Denver’s growth, educated workforce, strong demographics, and overall desirability, it has become an enticing market for out of state capital. Denver’s central geographical location, with one of the largest international airports in the country and lack of other major metropolitans in the immediate area, sets itself apart as a logical and equitable environment for industrial product to flourish. With access to major distribution hubs and shipping routes, it is seen as a prime location for both private and institutional capital and a big reason why 55% of sales volume has come from out-of-state capital this past year.

While many local investors have been outpriced due to the rapid appreciation in industrial values seen in recent years, it has made for great opportunities for buyers coming from other markets, such as California and New York, who are seeking better yield than what they may be getting in their own respective markets.

Over the past 12 months, the volatility in the debt market has led to a decrease in transaction volume. This slowdown has particularly affected institutional capital which has not been able to achieve the preferred rates of return for their investors. With that being said, transactions exceeding $13 million have only taken up a mere 5% of total transaction volume within the past year. Rather, the small and middle market sector has witnessed heightened activity, with a staggering number of deals falling within the $1-5 million range. These buyers have been able to get a bit more creative with their underwriting and find unconventional ways to create value and get deals across the finish line.

Sales Price Per SF

Throughout commercial real estate, historically low interest rates helped prices surge from 2019 through the peak in late 2021 and early 2022. Although the industrial sector has fared better than most other asset classes as of late, it has still been susceptible to the rise in interest rates and borrowing costs. With higher-than-expected core inflation potentially prolonging anticipated rate cuts as well as other pressures still remaining, such as in the workforce and supply chain, pricing is expected to plateau or continue decreasing as we move farther along in the year.

Big Mover In The Industry For 2024

PepsiCo Beverages North America Facility Site Highlights

• Located off 72nd and Argonne St, less than five miles to DIA (Denver International Airport), near major thoroughfares: E-470 and I-70
• Creating nearly 250 new jobs in Denver
• With plans to originally complete construction in summer 2023, the facility is still under construction.
• 1.2 million SF facility on 152 acres
• Replacing its existing bottling manufacturing property that has been in Denver since the 1950s, with plans to hold three times the capacity compared to its old facility.
• The new facility plans to aim for 100% renewable electricity, best-in-class water efficiency, and reduced virgin plastic use.