Job growth and pot growth are fueling record high lease rates and low vacancies in Denver’s industrial real estate market.
“Competition for industrial space in the Denver market is very aggressive,” said Dawn McCombs, senior vice president and industrial specialist at the Denver office of brokerage Avison Young. “The lack of quality options for tenants is driving rental rates higher than I have ever seen.”
Avison Young’s market report released this week shows that first-quarter lease rates averaged $7.47 per square foot, up 10 percent from a year earlier and the highest ever recorded for metro Denver.
Part of the market surge is tied directly to legal marijuana. Pot growers and manufacturers of cannabis-infused edibles have generated insatiable demand for warehouse space.
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Commercial real estate tracker Xceligent Inc. last year estimated that marijuana cultivation and manufacturing facilities in Denver occupy at least 4.5 million square feet — the equivalent of 78 football fields.
While the cannabis boom has eaten up nearly all inventories of cheap warehouse space, higher-grade “flex” buildings — which combine offices with distribution and manufacturing space — also are in short supply.
Occupancy and lease rates in those buildings have soared in concert with overall economic expansion in metro Denver.
“Population growth, job growth, increased manufacturing and consumer spending are contributing to the demand for space,” McCombs said. “Buyers and tenants are frustrated that they can’t locate space and are having to make due with their current locations, biding time until more space comes available.”
Demand is strong enough that major warehouse owners and developers such as Prologis and Majestic Realty Co. are building industrial properties speculatively, yet landing tenants before the projects are complete.
With leases in hand for two-thirds of a new, 500,000-square-foot warehouse at Interstate 70 and Tower Road in Aurora, Majestic decided to launch development of an adjacent, $15 million spec building.
“We strongly believe that now is the time to bring the space to the market in anticipation of (market) growth late this year and into 2016,” said Randy Hertel, Majestic’s executive vice president and director of development.
Current construction of 1 million square feet of industrial space in metro Denver “will likely not keep pace with tenant demand in the market,” commercial brokerage DTZ said in a recent report.
DTZ said relief could come from proposed construction next year of another 1 million square feet at the Crossroads Commerce Park on the site of the former Asarco smelter near I-70 and Interstate 25 in Globeville.
Steve Raabe: 303-954-1948, email@example.com or twitter.com/steveraabedp