CREJ

Page 18 — Office & Industrial Quarterly — March 2022 www.crej.com INDUSTRIAL — MARKET UPDATE BIG is buying Developed: • Colorado Logistics Park Development (Commerce City) Working On: • Rustic Hills Industrial Conversion (Colorado Springs) • Centennial Business Center Development (Centennial) • 5170-5280 Fox Street Vacant Buildings (Denver) • 3900 Uvalda Sale-Leaseback (Denver) • Innovate 25 Development (Thornton) Looking For: • Development Opportunities • Existing Opportunities With Upside Potential • Sale-Leasebacks & Covered Land Plays • Temperature Controlled Properties Single Building (Minimum $5 Million) & Portfolio Sales BRIAN ROACH Managing Principal m 303-597-6023 broach@brennanllc.com JOHN TORP Vice President m 303-521-8890 jtorp@brennanllc.com Centennial Business Center T he new year picked up right where 2021 left off, with a frenzied pace in industrial real estate. Across the Den- ver metro area, we are seeing strong interest from out-of-state investors eager to invest in the region following the upward trend of population growth. Denver’s job growth last year ranked 11th in the nation and is predicted to grow 45% over the next decade; combined with already low vacancy rates for industrial property, the demand for space has not slowed down. Investors see industrial property as a stable asset class, and they seek areas with future growth potential where they see demand for space not slowing down. Den- ver has 11 million square feet of industrial property under construc- tion in 2022 after a year where the market saw record leasing activity. This tenant frenzy for space helped propel Denver’s rent growth in the fourth quarter to be 5.9%, with expected growth in the first quarter of 2022 to be even higher. This competi- tion has resulted in compressed cap rates and higher sales prices for sellers. Adding to these bidding wars is a general lack of inventory, put- ting sellers in the driver’s seat and often fielding mul- tiple offers. In the current market, we are seeing buyers take on renova- tion projects/capi- tal expenditures, vacancies and offer incentives like nonrefundable deposits to secure deals. With interest rates still low, investors are able to bid aggressive- ly on properties to take advantage of growing rental rates. With supply chain issues still slowing deliveries, existing space, even with vacancies or capital improvements required, is being sent into bidding wars from inves- tors who are eager to get involved in this fast-growing market. The result of this activity has led to the average sales price increasing from $150 in fourth-quarter 2020 to $170 in the first quarter of 2022. Denver’s fundamentals have allowed it to benefit from large corporations looking to increase their footprint in the area. As more people move to the state, last-mile logistics facilities have become more vital for companies to have in the Denver metro area to service its growing population. New highway- adjacent facilities are being built to keep up with this demand. Even with record absorption, owners are inking new leases and sales even before completing construction. The overall tight inventory and competitive investment environ- ment are affecting owner-users as well. A lack of inventory means businesses are not able to expand or relocate easily since there are so few available properties and so many active players. The current buying-friendly envi- ronment is driven by historically low interest rates – savvy property owners realizing they can com- mand high prices are looking at sale-leasebacks to lock in lease rates with fixed increases and pull large amounts of equity from their properties to reinvest in the busi- ness and grow their balance sheet. Even owners who have purchased recently have seen large equity growth in their real estate. Investors are leveraging these low interest rates to secure investment properties and strong cash flow – a win-win for everyone. Even with short leases in place, investors are able to pay a premium because they can take advantage of quickly grow- ing rental rates. Both buyers and sellers see the market as an opportunistic envi- ronment, with sellers being able to cash in on high prices and buyers taking advantage of low vacancies and high rent growth. After a record year in 2021, we expect 2022 to be just as competitive in the industrial space. s alyssa.tomback@marcusmillichap.com thimy.moraitis@marcusmillichap.com Frenzied pace continues for industrial investors Alyssa Tomback Associate, investment specialists, TAG Industrial Group, Marcus & Millichap Thimy Moraitis Associate, investment specialists, TAG Industrial Group, Marcus & Millichap Investors see industrial property as a stable asset class, and they seek areas with future growth potential where they see demand for space not slowing down.