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Page 20 — Office & Industrial Quarterly — March 2021 www.crej.com INDUSTRIAL MARKET UPDATE O verall, 2020 marked a record year for the U.S. industrial market due in large part to the increased e-commerce activity driven by COVID-19. Here in Denver, the industrial mar- ket emerged from 2020 resilient and healthy with strong deliveries, posi- tive net absorption and a construc- tion pipeline that again reached new highs. Confidence remains high as the market continued its streak of positive net absorption for the 43rd consecutive quarter. ■ Looking back at 2020. The Denver industrial market reached record- high development with over 4 mil- lion square feet delivered in 2020 and construction activity rising to 8.2 million sf – the highest in over 20 years. Of the total volume of projects underway, 4.2 million sf (51.9%) is planned for speculative space, and 3.9 million sf (48.1%) is preleased. Notable projects underway include the 1 million-sf Lowes build-to-suit and the speculative 594,000-sf Staf- ford Logistics Center Building 1, both located in Denver’s airport submar- ket. Annual absorption activity reached nearly 3.4 million sf, a 14.9% increase year over year, in line with the 22% increase in quarterly net absorp- tion. Overall annual sales volume increased 7.4% from 2019 to nearly $1.6 billion. The overall average price per sf remained stable year over year at $130 per sf. Unsurprisingly, leasing activity was dominated by e-commerce users. In addition to the Lowes e-commerce distribution center, another well- known e-commerce company leased almost 1.5 mil- lion sf in Denver in 2020, and is building another 1 million sf at the Stafford Logistics Center and 3.6 mil- lion sf in Colorado Springs. ■ Looking ahead in 2021. Industrial became the most in-demand com- mercial property sector in the nation as e-commerce sales increased by over 40% due to COVID-19 restrictions. At a national level, demand for industrial buildings was strongest among mega-distribu- tion facilities of 1 million sf or more, which was reflected in the average size of the nation’s top 100 industrial deals in 2020, which topped more than a million sf. This is a significant jump over 2019’s average of 887,594 sf. Across the country, there were 48 leases of 1 million sf or larger, a sig- nificant increase from the 29 leases of this size in 2019. E-commerce occupiers, companies that exclusive- ly ship directly to consumers, led the country with 35 transactions totaling 37.3 million sf – nearly double the 18 signed in 2019. Nationally, e-commerce will be a demand driver for the foreseeable future, along with the need to hold additional inventory onshore (known as “safety stock”) to avoid supply disruptions like we saw as a result of the pandemic’s disruptions in early 2020. As a result, even as life returns to normal, average transaction size likely will continue to increase in 2021. But the good news for industrial will extend to Denver as well and the picture looks equally rosy due to sev- eral key factors: • New construction – There seems to be no constraint to supply as over 10 million sf of spec construction is planned and will break ground as existing projects get absorbed. • Resulting vacancy – Vacancy in the big-box distribution market will continue to climb because of these deliveries, but e-commerce demand is likely to continue to drive absorp- tion. • Lease rates – National and region- al distributors will be required to be in Denver and will pay the going rate, driving lease rates up. • Investment sales – Cap rates in gateway markets have dropped to undesirable levels. Every institution sees Denver as an opportunity to chase yield. This demand will lead to additional cap rate compression and increased sales prices. When the pandemic began, there was endless speculation about how commercial real estate would be impacted, but as the situation began to become clear, the demand for e-commerce became an unrelent- ing driver for the industrial sector, a trend that shows no signs of stop- ping. While we can never be sure what the future holds, it’s a safe bet that Denver’s industrial market will continue to grow stronger in 2021 and, quite possibly, for much longer. ▲ paul.kluck@cbre.com E-commerce boom shows no sign of slowing NATIONAL REACH, LOCAL RESULTS. 303-657-9700 BrinkmannConstructors.com Paul Kluck, SIOR First vice president, Industrial & Logistics, Advisory & Transaction Services, CBRE