In the Denver area, leasing for industrial spaces seeing a rebound

In the Denver area shopping centers are frequently changing hands new construction or redevelopment projects are emerging and restaurant owners continue to grapple with rising costs However within the broader commercial real estate landscape Denver s industrial domain has picked up speed After a brief slowdown last quarter contemporary third-quarter reports from national real estate companies CBRE and JLL stated more than million square feet of warehouse and industrial space was leased in the third quarter driven by major tenant deals and a growing demand for custom-built industrial facilities However the amount of industrial space under construction is the lowest it has been in a decade At the same time innovative opportunities for single-tenant warehouse spaces are emerging to meet the growing demand for smaller businesses to enter the sphere Things can change very hastily in the world and quarter two kind of when tariffs were disclosed and everything came out it was a little slower from the leasing front During quarter three we saw that pick back up disclosed Brandon Rosely senior research analyst at JLL There s a lot of positive momentum behind leasing At the moment We have yet to see several of those larger leases but that was made up for with selected of these owner-users purchasing buildings I think our sector metrics are going to tighten slightly over the next quarter to two and overall move Denver in the right direction when it comes to industrial space The rebound was primarily driven by PepsiCo which occupied million square feet at its newly completed bottling facility near Denver International Airport In addition to the rise two sizable vacant buildings were acquired by Trader Joe s which purchased the Lovett Logistics Center and CEMCO in Commerce City along I- Denver s industrial growth pipeline has reached a five-year low following the completion of major projects like Pepsi s bottling facility and other speculative developments the JLL assessment revealed This tightening supply is expected to benefit landlords aiming to fill in recent days finished spaces At the same time tenants are gaining leverage and increasingly eyeing upgrades as their lease renewals approach A new Pepsi bottling plant being built near Denver International Airport as seen in Denver on April Photo by RJ Sangosti The Denver Post Supporting this trend CBRE noted that year-over-year construction activity has dropped nearly reaching the lowest total amount of industrial space under construction since the fourth quarter of However despite the completion of PepsiCo s facility a considerable portion of construction consists of build-to-suit or preleased projects The amount of space under construction ended the third quarter at million square feet decreasing million square feet quarter-over-quarter Notable projects under construction include the Aero industrial complex which plans two speculative warehouses in Aurora Catalyst Industrial in Centennial and Food Bank of the Rockies new distribution center in Aurora All are estimated to be completed in the first quarter of In addition Tobacco giant Philip Morris International is expected to complete an -square-foot manufacturing plant sometime in the fourth quarter of this year Seven buildings broke ground for a combined square feet while nine buildings delivered million square feet with a preleasing rate of Notable projects latest ground include two build-to-suit developments for undisclosed tenants one near the airport and another in the southeast along with Hub Arapahoe Buildings and by Jordan Perlmutter Co Additionally two projects broke ground in the northwest part of the metro area including a -square-foot building for Restaurant Depot in Broomfield and a speculative project in Louisville at S Arthur Ave The overall direct vacancy rate for the Denver metro area in the third quarter was slightly down from in the same quarter last year according to CBRE facts Evolving tenant requirements Rosely explained during the pandemic industrial evolution was all speculative meaning that properties were constructed with the intent of immediate sale or lease upon completion However the demand has since shifted Everyone requested to get in on the industrial craze that was kind of going across the United States Rosely reported I would say now a lot of these groups when they re thinking big-scale projects here in Denver they want the customizability of the project and so they re going to the build-to-suit journey A build-to-suit maturation refers to the approach where a tenant collaborates with a developer or landowner to create a customized facility for lease According to Rosely Denver has a broad tenant base but emerging industries like fitness aerospace and professional services are steadily climbing These industries create varied space demands and lease arrangements which not only help stabilize the area against single-industry swings but also highlight Denver s appeal to a broader range of tenants pursuing regional opportunities Projects completed this quarter were speculative including Arista Buildings - Deer Creek Commerce Center Buildings and and Innovate Buildings - JLL Senior Managing Director Carmon Hicks reported he observed a shift in tenant behavior with tenants asking for more improvement allowances for their build-outs He commented landlords are responding by offering more creative incentives including more funding for renovations and improvements or providing months of free rent to encourage occupiers to make leasing decisions I think it speaks to several of the uncertainty that we re seeing you know across the country with tariffs with interest rates being what they are Hicks announced Addressing this growing diversity Maryland-based WareSpace has identified a gap in industrial real estate options for smaller businesses in Denver WareSpace Founder and CEO Levi Cohen revealed massive big-box industrial buildings have been built over the past to years to cater to large users like Amazon or Wayfair Smaller older industrial buildings near population centers are often converted into multifamily housing or retail spaces to make better use of the available area leaving fewer options for growing companies in between WareSpace fills this gap by converting large single-tenant warehouses into multiple smaller units Founded in the company has locations spread across several states including Arizona Colorado Florida Georgia Illinois Minnesota New Jersey North Carolina Pennsylvania Texas Utah and Washington WareSpace is a national real estate firm specializing in the progress of co-warehousing and small-bay industrial spaces between to square feet The firm adapts and reconfigures dated industrial and challenged properties into thriving hubs that sponsorship the surrounding small business locality Photo provided by WareSpace The majority typical real estate developers like to go after the big you know Amazons of the world for us I see that people are starting to wake up and realize just how big the small-business segment is within the industrial field right now Cohen revealed This year the company acquired a square-foot industrial property in Denver s Park Hill neighborhood marking the company s second location in the Denver area These spaces come equipped with amenities office areas and short-term leases providing flexible industrial facilities tailored to the necessities of smaller tenants The Park Hill location is expected to be ready for tenants by spring with a Centennial facility opening in December Cohen stated the company aims to grow in Denver once both locations launch and is also eyeing Colorado Springs as a prospective region We have tenants You know that s small businesses people that run their business out of our buildings It s an honor to be a partner with them and I m hoping that we could have thousands of companies working with us in the coming years Cohen disclosed they plan to keep their spaces as affordable as manageable with prices ranging from to per month depending on the area and unit size In Denver the overall average rent reached per square foot a increase compared to last quarter and a increase year-over-year The largest part essential increase was seen in the southwest part of the metro area rising quarter-over-quarter to per square foot Related Articles Minneapolis-based firms expand in Colorado with M industrial real estate purchase How can Longmont even be considering swapping open space land for Boulder s industrial compost complex Opinion Lender forecloses on newly renovated Central Park industrial building New industrial progress in Arvada lands first tenant Developer planning next major industrial park on acres near DIA Leasing volume in the third quarter of totaled million square feet while year-to-date activity has declined compared to the third quarter of a CBRE document stated The average lease size this quarter was square feet across deals The largest lease of the quarter was RK Industries renewing for square feet near the airport The two largest move-outs of the quarter were OneTouchPoint vacating square feet that they made available for sublease at Joliet St and Whole Foods Field vacating square feet at Clarion Gateway Building Rosely doesn t expect there will be numerous more speculative projects to break ground this year while Hicks reported there would be enhancement in the northern and southern parts of Colorado Keep in mind that the cost of living in Denver is getting expensive You ve seen a move north and you ve seen a move south with residential and I think improvement on the industrial side is following suit he stated Hicks announced markets such as Loveland Fort Lupton Johnstown and Monument are starting to see more activity and advance where there s a need for new advancement Get more business news by signing up for our On The Block newsletter