Airport submarket in 16th year of positive absorption

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Denver’s industrial market has seen positive absorption every quarter for more than eight years, and rental rates have climbed to record highs.

But even more impressive is what’s happened in the airport submarket – by far the largest industrial submarket in metro Denver.

Although the 82.64 million-square-foot submarket had no new deliveries and just over 10,000 square feet of negative absorption in the second quarter, according to CBRE Research, on a year-over-year basis, “The airport submarket is actually right now at about 16 years of positive absorption, which is an incredible statistic,” said CBRE Senior Vice President Jeremy Ballenger.

That shows the submarket went through an entire real estate cycle without a year of negative absorption – something Ballenger noted is “really amazing.”

The airport submarket’s direct vacancy rate stood at 5.8 percent at the end of the second quarter with the average lease rate at $6.13 per sf triple net, according to CBRE Research. There is 2.11 million sf under construction, but Ballenger said, “If you are a 200,000-square-foot tenant right now, in the airport submarket, I think you’d have two Class A options available … So there’s just not as much space to lease.”

“Most of the smaller spaces are full right now,” he added.

Throughout the metro market, including Boulder, the direct vacancy rate for industrial product was 6.1 percent at the close of the second quarter. A total of 419,516 sf was absorbed during the quarter, 5.2 million was under construction, and there were 869,421 sf of completions, according to CBRE Research.

Absorption for the first half of the year was 824,447 sf, down from 1.1 million sf during the first six months of 2017.

The average rental rate was a record high $8.14 per sf triple net, led by Boulder at $12.86 per sf, and more than $10 per sf in the Interstate 76, southwest and west submarkets.

“The rates have been increasing now for years on end. It definitely is beginning to impact companies,” said Ballenger, who noted some industries are more impacted than others.

Although not a widespread trend, “We have done some recent leases where tenants have actually taken less space than they wanted to try to make their budgets work,” he said, adding he expects continued rate increases in the months ahead.

“There’s definitely a question of, ‘How far can they go?’ But when you look at Denver from a national perspective, Denver falls right about in the middle of the pack as far as how expensive our market is,” he said.

Industrial user sales were less than half what they were during the first quarter, CBRE Research reported. That’s probably due, at least in part, to the fact that there are fewer properties available to users, Ballenger said. Pricing for new user buildings was more than $133 per sf, and Ballenger expects trades in the range of $150 per sf or even higher.

Investment and user sales for the first half of the year reached $762.6 million, a year-over-year increase of nearly 50 percent, according to CBRE Research. The average price per sf was $120.48 per sf.

Featured in CREJ’s Aug. 1-14, 2018, issue

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