CREJ

March 2022 — Office & Industrial Quarterly — Page 17 www.crej.com INSIDE Market updates PAGES 18-22 Smart industrial PAGE 26 Workplace wellness PAGE 24 Investor appetite for Colorado industrial assets continues at a frenzied pace The latest industrial revolution identifies the impact smart technologies will have on space An emphasis on healthier, human-centric building practices helps retain workers March 2022 A prominent industrial devel- oper in the Denver market triumphantly closes on a site in the central submarket after its third “best and final offer” in an extremely competitive process. Despite ground pricing in the range of $8-$10 a square foot two years ago, the new $30 per-sf pricing is justified as tenant demand is at an all-time high, sites are scarce and cap rates continue to compress.When the developer’s due diligence/entitlement process commenced eight months ago, the project budget was $160 per sf. As new construction numbers come in, the new estimate is closer to $200 per sf. The developer scratches his head a bit and increases the pro forma rental rate from $9 per sf to $10.50 per sf and adjusts the exit cap down from 4.25% to 3.75%. Time to break ground; the future tenants will have to pay more rent to justify this project. A tenant repre- sentation broker is working with a building sup- ply company that needs more space. She is told the user needs to be close to rooftops, have immediate convenient highway access and freeway visibility. After touring several options in the central Denver market, there are two loca- tions that have the correct number of docks, a lease-ready spec suite, 32-foot clear height and a convenient location that won’t lose its custom- ers. The broker finds out one of those two spaces just got leased, the tenant is down to one option. On that final option, she hears there are two other tenants with proposals on the space. Although the asking rate is $10.50 per sf, the broker tells the company to offer $11 per sf to ensure its proposal is accepted. Although it currently is paying $7.50 a sf on lesser square foot- age, the tenant reluctantly agrees, as it is the only space on the market that works. It secures its new location for the next seven years. It is one of the tenants that contributed to the almost 10 million sf of net absorption in 2021. Coupled with the rapidly increasing pricing for inventory, operational costs have just gone up as well; the tenant knows it will have to raise its prices. One of Denver’s premier contractors is on his way to his favorite building supply company’s new space for his first pickup. He notes his company has doubled in size and now is in Class A new construction right off the highway with a big sign. Although not surprised, steel joists and deck that were $6 to $7 a sf for an industrial project are now $18 to $19 a sf with the increase occurring in just the last Please see Market Outlook, Page 27 Industrial real estate: The ideal inflation hedge? Nick Rice Vice president, Colliers Upon project completion, the almost 200,000-square-foot Class A distribution center, Central Connection, was fully leased. The project exemplifies many of the trends of this hot market.