Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/818922
M A R K E T H I G H L I G H T: C O L O R A D O 44 • May 2017 • Western Real Estate Business www.REBusinessOnline.com Denver's industrial market has had an impressive run so far this econom- ic cycle – so much so that the top-of- mind-question is, "Where do we go from here?" Last year was a prolific year, attracting new investors, deliv- ering 4.5 million square feet of Class A space and posting the fifth straight year of sub-5 percent vacancy. But the outlook for 2017 is brighter given Denver's strong economic founda- tion, the arrival of e-commerce users and delivery of much-needed ware- house inventory. E-commerce Arrives in a Big Way E-commerce arrived in Denver in 2016 but is only just rolling out. Con- struction began earlier this year on a 1.1-million-square-foot fulfillment cen- ter, which will be the market's largest industrial building upon completion. Several other last-mile e-commerce fa- cilities are opening in the region that are intended to provide same-day or fresh food delivery. The local e-com- merce footprint is approaching 3 mil- lion square feet in total. E-commerce companies are active- ly securing sites in Denver largely in response to the region's explosive population growth. Colorado was the second-fastest-growing state in 2015, and Colorado's Front Range commu- nities are home to more than 5 million people. Between 2010 and 2016, Den- ver added nearly 1,000 new residents a week and ranked 12th in the U.S. for population growth overall. E-commerce users are also drawn to markets with a significant Mil- lennial presence because this demo- graphic has the highest rate of online purchases. Denver has been a magnet for Millennials — not only drawn to Colorado's mountains but also its diverse mix of jobs and "cool factor" — throughout the current expansion cycle. Millennials are the largest gen- erational cohort in Denver, represent- ing 24 percent of the population and 32 percent of the workforce. Build It and They Will Come Developers are earnestly delivering new product after recognizing deep demand. More than 11 million square feet of new inventory has been added since 2010, but nearly half of that was in 2016 alone. As of early 2017, 5.2 million square feet of space is under- way, setting up for another hefty year of deliveries. The majority of con- struction activity is in the Airport/ Northeast submarket, but develop- ment is widespread. This includes the Central submarkets, which have seen minimal new supply in the past decade. Construction is largely spec- ulative but, despite that, 44.5 percent is pre-leased. Leasing activity is particularly strong in urban infill locations where it is rare to find new Class A product. Hub 25, for example, is a 421,000-square-foot project developed by Westfield Com- pany that will deliver in the middle of the second quarter of 2017. It is already 61 percent pre-leased. Tenants have been drawn to the project's Central- submarket location, highway visibility and Class A features. With significant new industrial products delivered over the past year, we are expecting 2017 to be a top year for industrial absorption in Denver. Close to 5 million square feet of ab- sorption is likely to occur this year, making this one of the three most ac- tive years on record outside of 2000 and 2006. This not only matches the current construction pipeline but also comes on the heels of 28 consecutive quar- ters of positive net absorption, five years of sub-5 percent vacancy and a 28 percent increase in the average ask- ing rental rate over the past five years — to $7.62 per square foot triple net. While upward pressure on rental rates is a challenge for some users in the market, it reflects a parallel increase in construction costs for both tenant fin- ish and core and shell projects. Possible tailwinds for industrial demand include proposed legislation for statewide transportation upgrades to the tune of $11 billion and a resur- gence of manufacturing prompted by federal government policies. Assum- ing population and job growth con- tinue, and that the market is able to remain affordable compared to com- petitor markets, 2017 will go down in Denver industrial history as a banner year. DENVER INDUSTRIAL MARKET IS STILL CLIMBING Tyler Carner Senior Vice President, CBRE Industrial & Logistics Services BRIGHTON THINKS BIG, STAYS 'SMALL' While much of Colorado's commercial real estate publicity may center on Denver, there are many opportunities for savvy developers, investors and business owners throughout the state's smaller communities. Brighton is one of these communities. Located just 22 miles northeast of Denver and 20 minutes from the metro's downtown region and international airport, this Adams County suburb has seen its population swell from 15,000 in 1995 to nearly 40,000 today. This growth has taken Brighton from a small agricultural town to a medium-sized city that's picking up steam at a healthy pace. That's be- cause nearly 50 percent of the city's land mass has yet to be developed, presenting ample opportunities for developers. Brighton also houses the largest available building in Colorado, a 1.3-million-square-foot for- mer Sears/Kmart distribution center. A building of this size can be a rare find anywhere in the U.S., inside or out of Colorado. The city also recently expanded the Prairie Center, and welcomes new businesses to its historic downtown and South Main Street dis- tricts on a regular basis. The regional power center already features an- chors like Target, Kohl's and Home Depot. The roster will soon include Ulta Beauty, Old Chicago and Red Robin. The shopping center will also receive a built-in customer base in the form of the 288-unit Elements at Prairie Center apartment complex in the near future. Part of Brighton's recent development and leasing success can be at- tributed to its strategic approach to planning, expansion and new de- velopment. The city prides itself on maintaining "the small-town feel that residents are accustomed to, while planning for the 'big-town' challenges that Brighton faces in the very near future." This includes a comprehensive plan that outlines the vision for the physical, social and economic character- istics of the community in the years ahead, as well as how to execute this vision. The Economic Development Corporation (EDC) has formulated new partnerships and plans to increase commu- nication with the local business community to support their needs for growth and success. This includes one-on-one visits to businesses, surveys and other methods to garner feedback. The Small Business Development Center, which provides individual counseling, classroom training and other critical services for startups and small companies, is one of the EDC's partners on this initiative. Additional partners include Accion, Colorado Enterprise Fund and Colo- rado Lending Source, which offer access to capi- tal through financing assistance for startups and small businesses of all kinds; TiE Rockies and Rockies Venture Club, which provide opportuni- ties to access mentoring and attract investment from venture capitalists and angel investors; and the Adams County Workforce and Business Cen- ter, which offer training programs and can help businesses find qualified candidates to fill a vari- ety of positions. When you do the math, it's easy to see how cities like Brighton add up to big opportunities for businesses of all sizes: a population growth of more than 50 percent over the past 22 years, plus a land mass development potential of nearly 50 percent equals a no-brainer for those looking to make their mark in Colorado. — Nellie Day Brighton houses the largest available building in Colorado, a 1.3-million-square-foot former Sears/Kmart distribution center. Brighton's population has risen from 15,000 in 1995 to nearly 40,000 today.