Den­ver com­mer­cial real es­tate fin­ishes 2015 strong.

In­dus­trial real es­tate sets records reg­u­larly

The Denver Post - - BUSINESS - By Em­i­lie Rusch Em­i­lie Rusch: 303-954-2457, er­usch@den­ver­post.com or @em­i­lier­usch

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.

Square-foot surges

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.”

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