Denver commercial real estate finishes 2015 strong.
Industrial real estate sets records regularly
Denver’s industrial real estate market posted its 23rd consecutive quarter of positive leasing activity to close out 2015 as the cost of renting space surpassed highs set before the recession, according to data released Tuesday.
Squeezed by high demand and low supply across the Denver area, the average industrial asking lease rate jumped to $7.23 per square foot triple net in the fourth quarter, up 4.2 percent year over year and 2.6 percent from the third quarter, the CBRE report showed.
That’s a penny higher than the previous market record of $7.22 per square foot set in second quarter 2004, the commercial real estate firm said.
“Really, the headline for 2015 was continued improvement in the market from a base that was near or at record levels already,” said Jeremy Ballenger, a vice president with CBRE Industrial Investment Properties. “It was a pretty incredible year.”
2016 looks the same
The positive trend ought to continue throughout 2016 for all three sectors of the commercial real estate market, said Jessica Ostermick, director of research and analysis for CBRE in Denver. Industrial, office and retail all saw lease rates increase in 2015.
On the industrial side, 151,841 square feet was absorbed in the fourth quarter, despite a 1.1 millionsquare-foot distribution center in the north metro area becoming vacant. Annual absorption topped 2 million square feet.
Big demand drivers include food companies and the residential construction sector, Ballenger said. E-commerce is also active in the market.
About 2.7 million square feet of industrial space is under construction — 90 percent of which is being built without pre-leasing.
Most of the new construction is large bay buildings intended for large-scale users, not the smaller users who require less than 100,000 square feet and make up 93 percent of the local market, Ballenger said.
“We need new space,” he said. “Demand is at least keeping up with, if not outpacing, what has delivered so far.”
Overall, industrial vacancy rates ended the year at 5 percent, up from 4.6 percent in 2014.
“It continues to be a landlord market,” Ostermick said.
Denver’s office market posted its 17th consecutive quarter of rising lease rates. The average asking rate for office space was $24.92 per square foot full service in the fourth quarter, up 7.6 percent year over year, according to CBRE.
Vacancy was 12.6 percent across the metro area, a slight decrease over the third quarter, with a total of 574,572 square feet of office space absorbed.
In 2016, 1.1 million square feet of new Class A office space is expected to come online.
The attractiveness of Denver’s labor market continues to drive demand for office space, said Alex Hammerstein, senior vice president with CBRE’s Occupier Services Group.
“We’re seeing more outof-state interest, particularly from the tech industry, than we’ve seen in 20 years,” Hammerstein said.
“I really expect the same sort of indicators” in 2016, he said. “We’ll see more positive absorption. We’ll see rental rate increases. In some markets, we may see less increase as new product delivers, but I really see the same fundamentals continuing.”
Retail, the segment slowest to recover from the recession, saw the total amount of space being occupied fall 56,540 square feet in the fourth quarter, according to CBRE.
The culprit wasn’t decreased demand so much as Safeway officially vacating two big spaces in the area, said Jim Lee, vice president with CBRE’s Retail Brokerage Services.
For the year, net absorption was positive, with 578,805 more square feet occupied at the end of the year than the beginning, Lee said, with specialty grocers and restaurants leading the charge.
Average lease rates ended 2015 at $17.19 per square foot triple net, a 8.8 percent increase year over year.
“It was another strong year. We’re seeing rates go up, we’re seeing new construction, we’re seeing activity from grocers, restaurants, a variety of different retail users expanding, we’re seeing the new housing construction,” Lee said. “Retailers love to see new houses coming in.”