CREJ

Page 30 — Office & Industrial Quarterly — June 2021 www.crej.com INDUSTRIAL — MARKET OUTLOOK W hile most commercial real estate sectors have lan- guished over the past year, the industrial market has experienced the most prom- ise for post-pandemic success. We knowwhat a gut punch the office sector has absorbed.The same has been true for restaurant, hospital- ity and a large chunk of retail space. Predictably, health care has remained robust and, after an especially bumpy 2020, multifamily fundamentals have rebounded nicely with demand outpac- ing new supply in this year’s first quar- ter.Those other distressed markets are rallying as well, albeit more deliberately than consumers would like. But it is the metro area’s industrial sector that has proven to be the rock star quarter over quarter in the 14-plus months under the thumb of the pandemic. In fact, all of 2020 and 2021 year to date have generated nothing but positive metrics for industrial space here. According to sta- tistics compiled by CoStar Group infor- mation services, Denver recorded 1.2 million square feet of positive net absorption with vacancy hovering at 6.9% in the first quarter of this year.Twelve-month rent growth ticked up 2.2% with overall rental rates settling at $10.20 per sf, the most ever recorded for this sector. Construction activity broke another record with 8.3 million sf in process. These and other stable fundamentals coupled with a lack of available space are driving up industrial sales prices. There are three main types of indus- trial space with many more subsec- tors: logistical, spe- cialized and flex. Logistical space is designed to accom- modate e-com- merce-related dis- tribution.Typically, wide open spaces with high ceilings and cross docks define this model used to receive and ship goods into one dock and out the other. Specialized industrial space may include cranes and other heavy equip- ment for manufacturing, storage and distribution.These types of spaces also may require beefed up power, reinforced concrete flooring and other infrastructure improvements to accom- modate heavy operations. Flex industrial space is the hybrid of the group.This model features ware- house space, and may accommodate light manufacturing, research and development, bioscience, laboratory and a host of other purposes. Those are the broad strokes, and there is significant variance among these industrial property types. All of them can include a percentage dedicat- ed to office space, the size and design of which may vary according to the type of business, as well as who will be inhabiting the space at any given time. Though market watchers are careful not to overuse superlatives, it is clear that industrial space takes the lead as a current preferred investment asset, and the pipeline does nothing to dampen that sentiment. But why?What do key historical indicators reveal?What are the primary drivers, and will they prove sustainable through the rest of 2021 and beyond? “The vast majority of Denver’s indus- trial space is multitenant,” said Doug Ressler, manager, business intelligence, withYardi Systems, a provider of soft- ware solutions for the real estate indus- try. “Denver is a transfer point for those larger cities that have huge, single-ten- ant fulfillment and distribution centers in towns like Indianapolis and Kansas City.” In fact, about 42% of all industrial properties across the Front Range are multitenant, according to Commerci- alEdge, one of Yardi’s subsidiaries that produces broker-based software. Granted, Denver does have a small cadre of single-tenant mega-players in the market like Costco, Lowes Home Improvement and, of course, Ama- zon, among others.Those companies typically require 500,000 sf and up, and eventually, they’ll get it here. Smaller, multitenant companies, on the other hand, fuel economic growth faster by requiring a broader base of industrial real estate for their operations. After all, small businesses – those with fewer than 500 employees – anchor the Colo- rado economy, accounting for a stag- gering 99.5% of the state’s commercial operations, according to the U.S. Small Business Administration.Those people with dreams of hanging out their own E-commerce, migration fuel metro industrial market Justin Rayburn Principal, Fountainhead Commercial Lowrey Burnett President and principal, Fountainhead Commercial Please see Rayburn, Page 38 Aberdeen Construction Denver’s industrial sector continues to soar as e-commerce and positive migration reshape the marketplace. This building will feature up to 10% office spec space for a user on the fast track.