CREJ

Page 32 — Office & Industrial Quarterly — December 2021 www.crej.com shorter time frames now have com- panies that traditionally have dis- tributed to Denver from surrounding states targeting the metro area. This is driving record levels of demand for industrial space. Net absorption is on pace to set a new benchmark this year in metro Denver with nearly 4.5 million sf absorbed in the first three quarters of this year, a 70% increase year over year. Require- ments also are reaching historic sizes. To put this in perspective, Den- ver had only five industrial buildings over 1 million sf prior to 2020. Today, there are three new buildings over 1 million sf under construction, and there currently are five additional active requirements for over 1 mil- lion sf across the metro area. High levels of demand aren’t just impacting the largest requirements in the market. We are seeing strong demand in the midsize require- ments around 100,000 sf across sev- eral submarkets in the metro area where, traditionally, most industrial activity ran east along the Interstate 70 corridor. Now developers are turning their attention to other sub- markets, and industrial construction is beginning to surge in southeast Denver, north and northwest Den- ver, Boulder, Colorado Springs and Northern Colorado. There is current- ly 9.7 million sf of industrial space under construction in the area, with over 50% of that space being pre- leased. There is no doubt the supply chain is strained, and it is creating hard- ship for many businesses and shop- pers. Yet hardship often precipitates opportunity. The industrial sector is emerging from this pandemic a changed industry, with Denver antic- ipated to be a major beneficiary of a shifting supply chain. s todd.witty@cbre.com Continued from Page 19 INDUSTRIAL — TRENDS appreciate, the surrounding rings also experience a bump. And when values increase as they have on the Front Range in recent years, the dissemi- nation of this trend has far-reaching results: All of a sudden, outdoor stor- age is only available on the fringe, and the need to move farther and farther out leads to increased traffic and pol- lution, decreased efficiencies and a perpetual cycle of systematic business displacement. If outdoor storage seems to be going away but is critical for so many busi- nesses upon which we all rely, what can we do about it? First, buy indus- trial properties with outdoor storage components and keep their current uses … although perhaps not in unin- corporated Adams County. Supply and demand fundamentals should bring you handsome returns from both rental income and land banking perspectives. Second, be a vocal citi- zen with your local government and work together to put a sustainable and responsible plan in place for how planning departments can incorpo- rate new neighborhood plans allow- ing for outdoor storage in a safe and respectful way. Third, businesses can alleviate supply pressures by using only the outdoor storage area they truly need and subleasing out the rest. And fourth, we have a responsibility to continue exploring technologies and supply chain strategies that can reduce the amount of outdoor storage space on which the businesses we use depend. s abecker@rec-colorado.com Becker Continued from Page 24 CoStar Group Porteos is a new development in Aurora that has areas zoned for outdoor storage We believe this fundamental decen- tralization of the supply chain from offshore to onshore now all the way to smaller population centers is an inflec- tion point for Rocky Mountain industri- al markets, which are by nature smaller (but growing) population centers. This is a leading reason why key centers in the Rocky Mountain geography are experiencing below-average vacancies in the region, an indicator we expect to remain relatively stable going forward. Additionally, liquidity in this region has increased as more institutional buyers are adding these high-growth markets to their portfolios for the first time – following credit tenancy in this trend toward decentralization. Insti- tutional buyers can acquire a Home Depot warehouse in Northern Colorado with the same underlying credit at a positive yield spread to gateway mar- kets. As more institutional buyers add these markets, compressed yields may continue relative to gateway markets. The icing on the cake for industrial in the mountain states is that population growth is also at a similar (and compel- ling) point of inflection. n Population growth amplifies tail winds. Our favorite real estate metric and the oldest in the book is popula- tion growth. In our view, there’s reason to believe that Rocky Mountain indus- trial is well positioned given the shifts in population growth. Mountain states have grown every year for 75 consecu- tive years, most recently by 15.9% over the last decade. Not every region in the country can say the same, and some states are now experiencing consistent population declines. By way of exam- ple, according to the St. Louis FRED, as of Nov. 22, NewYork state’s popula- tion has declined each year since 2015, losing 1.6% over that time. Similarly, the state of Illinois’ population has declined each year since 2013, losing a total of 2.4% during that stretch. The case for mountain states is detailed further by the spread between growth rates in the western United States shown in the chart on Page 27. This spread in population growth between mountain states and western coastal states has widened over the last decade. Interestingly, this spread has remained positive for mountain states in the last five decades except for five years between 1986 and 1990. This has not always been the case. Between 1921 and 1971, mountain states had a positive growth rate spread in only 15 years, or 30%. Strong population growth means higher levels of consumption compared to previous years, resulting in an expected growth of industrial inventory requirements over the com- ing years.We believe that the recent widening of this spread over the last decade, coupled with the fundamental shift in purchasing behavior and the decentralization of the supply chain to the benefit of end user markets, cre- ates a compelling trifecta for industrial outperformance in the Rocky Mountain area going forward. These are the trends that we believe will continue driving growth in Colo- rado and the Rocky Mountain region and why we’re especially bullish on industrial in our backyard. s Blasdell Continued from Page 27 tioned to become a viable alternative to Denver. Traditionally known as a hub for aerospace and defense, Colo- rado Springs offers a solid economic foundation, which has proved attrac- tive for companies outside of those industries and future residents. Com- panies that previously believed they could easily distribute their products from Denver will soon realize that, with the complications with last-mile facilities and I-25 congestion, to best service the Colorado Springs market they must be in Colorado Springs. n Tailor your strategy to projected demand. Commercial real estate developers might have their eyes on the horizon to pursue large parcels of undeveloped land in Colorado, such as near Denver International Airport, but small, infill industrial projects have long had a history of outper- forming the big-box projects, and this will hold true in 2022. In an urban core like Denver or a growing city like Colorado Springs, there often are undeveloped parcels of land, vacant lots or empty build- ings that are primed for redevelop- ment and opportunity. An example of this type of project is Central Park Business Center, a speculative infill industrial park that our team has developed, located at the intersec- tion of Interstate 70 and Central Park Boulevard. Representing one of the few undeveloped infill sites in this market, the site has experienced interest from industrial users looking for convenient access for logistics and distribution throughout the metro area. Class A buildings with highway frontage and easy access for custom- ers are a rare find in Denver, but they cater to a single large user or multiple midsized tenants. When mapping a strategy to meet the demand for industrial space in the Denver and Colorado Springs markets, developers must keep in mind the three core tenets of a suc- cessful industrial property: location, visibility and access. Denver always has been and will continue to be “the darling” of Colora- do. However, secondary markets like Colorado Springs and Fort Collins are picking up momentum and becom- ing attractive residential and business destinations. As the Denver metro area continues to evolve, in 2022 we’ll see companies become more keenly aware of the bevy of industrial and logistical opportunities that these alternative markets have to offer. The significant rise in e-commerce and notable shifts in the competi- tive retail market on a national scale have local impacts. In Colorado, a growing population, coupled with heightened consumer demand for same-day delivery, will result in a critical need for last-mile delivery properties that effectively encompass the entire market. In 2022, developers may want to consider planting a flag in each corner of the Front Range to capture these demands and trends as this state continues to grow beyond Denver. s mrietz@confluentdev.com Rietz Continued from Page 28 Highfield Business Park, a joint development project from Confluent Development and Bradbury Properties, is a 100-acre industrial hub located in unincorporated Douglas County.