Dollar General’s new building of nearly 1 million square feet of space near Denver International Airport was among major projects that helped the Denver-area industrial real estate market end 2023 on a strong note.
Buoyed by major projects in late 2023, metro Denver’s industrial real estate market is starting the new year strong and no longer has one of the highest vacancy rates in the country.
The fourth quarter of 2023 was the Denver area’s second-largest in terms of new buildings delivered in the industrial sector at 3.2 million square feet, the Denver office of JLL, a global real estate firm, reported. The record was 3.6 million square feet in 2022.
The fourth quarter was also great for the leasing of space that had been sitting vacant, said Brandon Rosely, a research analyst for JLL. “All signs point to a strong 2024.”
Projects that helped drive up the numbers were completion of Dollar General’s nearly 1 million square feet of space near Denver International Airport; Performance Food Group’s 280,000-square-foot building along Interstate 76; and Home Depot’s 512,000-square-foot site.
The area’s vacancy rate for industrial space was 8.3% at the end of the year.
“Other large industrial markets are pushing 9%, even 10%,” Rosely said. “We’re in a lot healthier place than some of the markets that have overbuilt.”
The Denver area is no longer among the top 10 markets in term of vacancies, Rosely said.
Overall, approximately 5 million square feet of industrial real estate space was occupied in 2023. The total was roughly 4 million square feet in 2022.
“Denver had a solid year from an industrial perspective,” said Carmon Hicks, managing director of the logistics and industrial services team in Jll’s Denver office.
The weak spot was big-box buildings, Hicks said. Leasing was up in buildings for light manufacturing, solar companies, battery manufacturing, bottling plants and data centers. Hicks expects to see more leasing by e-commerce and distribution centers, which slowed in 2022 as interest rates rose.
Hicks also expects to see interest rates fall, spurring more leasing and growth. “I think we’re going to see movement in the commercial market starting to happen that we haven’t seen over the last 18 months.”
The real estate firm CBRE announced Wednesday that the Peoria Business Center, a three-building industrial portfolio in Denver, was sold to a partnership of Hyde Development and Mortenson Properties. Jeremy Ballenger, Tyler Carner, Jessica Ostermick and Jim Bolt with CBRE National Partners in Denver represented the seller, Invesco.
The Peoria Business Center includes three Class A buildings totaling 592,573 square feet at 12330 E. 46th Ave., 12360 E. 46th Ave. and 13100 E. Albrook Drive near the Denver airport.
“Folding the Peoria Business Center into our portfolio with 76 Commerce Center and HighPoint gives us a stronger presence of Class A industrial assets in Denver’s leading industrial submarket,” Paul Hyde, founder and CEO of Hyde Development, said in a statement.
Hicks of JLL believes Denver’s quality of life continues to be a draw for businesses and is attracting its share of companies looking to reshore or onshore their operations, Hicks added.
“That creates more jobs, more opportunities and Denver is on the map of areas people are considering when they’re looking for those opportunities,” Hicks said.
Metro Denver is a gateway for companies to expand east or west, Rosely said.
“We’ve seen some of the users new to the market, maybe from the Pacific Northwest or the West Coast, California, open businesses or open new distribution centers in the Denver area to reach the more eastern markets throughout the U.S.,” Rosely said.
The most active industrial submarkets are around the Denver airport, along the Interstate 25 corridor and in the southeast metro area, south of the Denver Tech Center.
The airport submarket is the area’s largest industrial marketplace and the leader across all primary performance metrics, according to CBRE research. The submarket had more than 1 million square feet of leasing activity in the fourth quarter of 2023, or 73% of the metro area’s total industrial leasing, the company said.
The activity in the southeast-metro submarket picked up in 2023, Rosely said. “That’s an area that had a quite high vacancy for some time.”
But the vacancy rate for industrial space of about 15% has dropped into single digits. “They absorbed about 800,000 square feet” in 2023, Rosely said.
The rents landlords are seeking have increased. Eight out of the metro area’s 11 submarkets saw rising asking rates in the fourth quarter, according to JLL. The average rate sought was $9.42 per square feet.