Colorado Real Estate Journal - August 19, 2015
Tenants are paying 20 to 25 percent more for Class A and B industrial space in Denver than they did prior to the recession – if they’re lucky enough to find it. Overall vacancy for warehouse/distribution space dropped to a record low 4.3 percent at the end of the second quarter. New development is being leased up before it can be delivered – a phenomenon that, while not unique to Denver, hasn’t occurred here in previous cycles. “It’s a period of time in Denver like we’ve never seen before,” said Mark Bowen, senior vice president for DCT Industrial Trust. “When the market gets below 6 percent vacancy, it really warrants new c o n s t r u c - tion, and it’s been below 6 percent for some time now. There has been new construction, but it hasn’t kept up with demand – and a lot of it is new demand.” DCT, a Denver-based industrial real estate acquisition, development, leasing and management company with approximately 73.3 million square feet of properties, owns just under 1.7 million sf in Denver’s largest (Interstate 70 east) and tightest (central) industrial submarkets. “In our (Denver) portfolio, we’re 100 percent occupied. We don’t have any vacancy,” said Bowen. The company’s tenants are staying put, as are tenants throughout the market. “They go out and explore the market, thinking you’re crazy with your rental rates, and they see that is the market. They have no place to go, so there’s very little movement,” Bowen said. “I get calls daily asking, ‘Do you have anything?’ and ‘Are you building anything?’” DCT Industrial Trust, looking to grow its Denver portfolio, has a small piece of land under contract with a goal of acquiring more property around it. The company only buys land it expects to develop and lease up within 24 months, and Bowen doesn’t expect a problem in today’s market. It’s also targeting Denver acquisition opportunities, which don’t come around often and meet with fierce competition from national investors. DCT bought the 689,557-sf Airport Distribution Center near Interstate 70 and Chambers Road in Aurora earlier this year. Unlike Houston, Southern California or some of the other markets in which DCT is active, “Denver is still, and in my opinion will always be, a regional market that supplies and distributes up and down the Front Range region. We’re a regional market that is getting bigger because more people want to be here.” It’s also a diverse market, fueled by residential construction, companies that service the energy industry and technology, Bowen said. “Denver’s really learned to diversify better than a lot of markets that I see, and it means when we do fall, we don’t fall quite as hard as we did in the past. That’s evidenced by our last recession.” Admittedly, “It’s good that land prices are little higher, it’s good that the (entitlement) process is a little harder to get through than in other markets because we’re holding supply in check, and yet it’s not shut off,” said Bowen. Bowen, who also oversees DCT Industrial Trust’s Seattle and Phoenix markets, said he wouldn’t mind doubling the size of the company’s Denver portfolio, but said growth will be deliberate and based on a long-term view. “You can’t get too comfortable with where we are right now. Supply will catch up, and demand will waver at some point. We just don’t know when.”