CREJ

Page 26 — Office & Industrial Quarterly — March 2021 www.crej.com INDUSTRIAL MARKET OUTLOOK I f you have had the opportunity to attend a Denver industrial panel by video or in person the past few years, I would be sur- prised if you haven’t heard an industry veteran mention, “Indus- trial is now the preferred asset class” or “Industrial is now the prettiest girl at prom.” But for those of us who started our careers post-2008 and are shocked when a package can’t arrive in two days, industrial’s attractiveness always has been our normal. What is shifting are the key industrial players. A quick glance at the top industrial users in the country by leased space in 2020 reads Amazon (87.9 million square feet), Home Depot (6.2 million sf), FedEx (5.7 million sf), Lowe’s Home Improvement (4.8 million sf) and Big Lots! (4.7 million sf). Yes, you read that correctly: Amazon absorbed over 14 times more space than the second-most aggressive tenant last year. Due to that rapid pace, “e-commerce-only” users now repre- sent 24.8% of the national industrial market. With this intense demand led by Amazon and an apparent rumor it will not seek as much space in 2021, it is fair to ask, “Will this dance con- tinue or is Denver approaching a precarious amount of oversupply?” It is no secret that Denver currently is eclipsing over 8.4 million sf of product under construction, which is an all-time high. As a user, you are spoiled for choice with high-quality speculative industrial developments in every major submarket and typi- cally several projects to evaluate in each of these locations. The central mar- ket, considered by many to be the most active, has four institutional- quality projects with buildings under construc- tion and several more in the pipe- line. Despite the Interstate 70 con- struction project presenting logisti- cal concerns, the airport submarket has no shortage of “big bombers” (buildings over 500,000 sf) planned and in the con- struction phase. In contrast, west Denver is experiencing new spec development in a land-constrained market, with two well-planned proj- ects that already have experienced leasing success. A once secondary submarket, the southeast has seen an influx of institutional investment resulting in more product currently under construction than ever before. The northwest is buoyed by the Col- orado Technology Center, achieving some of the highest rents in Colora- do, with many Broomfield sites look- ing to capitalize on this momentum as well. Each submarket is experiencing a full pipeline of activity; however, many comparable metro areas have more construction as a percentage of existing supply. Memphis, Tennes- see, is a 260 million-sf market with 14.8 million sf under construction (5.69%); Columbus, Ohio, has 256 million sf total and an additional 9.2 million sf under construction (3.62%); Phoenix represents 312 mil- lion sf total with another 9.2 million sf under construction (3%); and Salt Lake City has a staggering 9 million sf under construction to add to its 144 million total sf (5.6%). With these other metro areas in mind, it is hard to say the addition of Denver’s 8.4 million sf to the 255 million-sf market (3.3%) is considered oversup- plied. In our analysis, Denver is taking a measured and more disciplined approach when it comes to devel- opment projects. Also, it must be taken into consideration that of the aforementioned 8.4 million sf under construction, 3.4 million sf of that is represented by build-to-suit proj- ects for large users such as Lowe’s, Shamrock Foods and Amazon that will absorb the buildings upon delivery. With each new project tak- ing place, it is one less developable industrial site on the map and the underwriting becomes more scruti- nized. Many developers have taken on extremely daunting challenges by remediating former smelter plants, filling in lakes and boring under rail lines to bring their visions to fruition. With tenants having the power of choice, the building design, site plan and offering modern fea- tures become extremely important. Speed to market can make or break a potential lease and construction costs are increasing rapidly. In light of the many risks described above, there is insatiable capital demand seeking a position here, which has proven to make Denver an extremely hard market to plant a flag. When considering the What’s next in the industrial development dance? Nick Rice Broker associate, Colliers International Please see Rice, Page 30 The top industrial users in the country by leased space in 2020