Strong gains in population and travel spending highlight Colorado as an increasingly popular place to work and visit, boosting demand for hotel rooms in the state. Leisure travel spending has climbed by 28.9 percent over the past five years, surpassing $22 billion in 2018. More than half of those funds were spent on commercial lodging. Business travel is also bolstered by companies either entering or expanding in the state. These demand factors translate to hotel occupancy and revenue metrics that have consistently exceeded the national average since 2014. Colorado’s November annual average occupancy rate rose 90 basis points year over year to 68.1 percent, compared with the national metric that held flat at about 66.2 percent. Colorado’s annual average RevPAR grew 3.8 percent over that same span, more than triple the U.S. pace, to $98.48. Robust gains in both occupancy and RevPAR demonstrate how demand for Colorado hotel rooms has outpaced numerous supply additions. The state’s inventory of hotel rooms has expanded by about 13 percent over the past five years, with 4,226 hotel rooms under construction. More than half of the keys underway will be delivered in Denver and Colorado Springs. Notable new projects in the Denver metro include …
Denver’s industrial real estate market continues to fire on all cylinders with 37 consecutive quarters of positive net absorption, record amounts of new supply and record-low cap rates for investment properties. The region’s industrial product has benefitted greatly from a strong and diversified economy, significant population growth both locally and regionally and the continued trend by companies to modify their supply chain to accommodate same-day deliveries. Demand has come from existing businesses that have grown organically and are now serving a larger market and carrying increased inventories. It has also come from new companies that hadn’t previously had distribution centers here but now need to serve the Colorado Front Range and the Rocky Mountain region. A new phenomenon that impacted the market recently is increased demand by tenants and users seeking build-to-suits rather than leasing or purchasing speculative buildings. One reason has been affordability, as some new developers and their capital partners have accepted significantly lower yields on cost in order to “build into” the market, compared to existing local developers that have historically commanded higher yields for speculative product. An example of this was a project built by Becknell/UBS that contained a 541,000-square-foot, cross-dock building. Haier (GE) Appliances pre-leased …
Denver was one of the top major metros targeted by commercial real estate investors in 2018. This year is proving to be no different as the third quarter closes out with a flood of office deals. Office investors are being forced to look for deals outside Denver’s urban core. Value-add acquisitions are mainly redevelopments driven by tenant demand for “cool” workspace and talent wars. There is no arguing Denver’s office market is maturing, but there appears to be no threats of an impending plateau or decline. The headlines this year have been dominated by large office lease transactions, including WeWork tying up 220,000 square feet at McGregor Square in LoDo. WeWork has taken a commanding stance with 2 million square feet in Denver and counting. Much of that space is dedicated to enterprise office space solutions and headquarters locations. This year has also marked the notable expansion of coworking outside of Denver’s urban core into Midtown, Cherry Creek and Southeast Denver. Occupancy levels within WeWork locations historically ebb and flow with direct vacancy rates per submarket performance. For example, WeWork at Civic Center Plaza in Upper Downtown Denver has been slow to fill with memberships and term. A WeWork desk …
Single-tenant, net leased (STNL) retail properties continue to be among the most highly sought-after real estate investments. This is particularly true in Colorado and California where supply and demand constraints have created sales with significant premiums. Investors are accustomed to paying low cap rates for single-tenant assets within California as these properties have historically traded for a significant premium in comparison to the rest of the nation. However, the premium associated with Colorado STNL retail properties is a fairly new phenomenon. This Colorado premium can be attributed to a considerable supply and demand imbalance. There are very few available STNL properties within Colorado, and substantial capital actively chases this product type. California-based 1031 exchange investors seeking higher yields and Colorado-based 1031 exchange investors selling multifamily properties at historic pricing (due to significant appreciation in rents and historically low cap rates) are spurring the increased demand. Colorado’s strong economy and recent population growth has also led to a lot of new development. This has impacted the quality of available properties, many of which are new construction with long-term leases. The median sold cap rate for a STNL retail property in Colorado was 6.02 percent in 2017. This represented a 38 basis …
Denver industrial assets are achieving record pricing as cap rates compress well below 5 percent for Class A product. As this is happening, developers are taking on hefty projects, signaling that Denver’s industrial real estate cycle is stretching its legs instead of winding down. Among the headlines: • Denver’s single largest investment transaction on record occurred in the first quarter of 2018. The Pauls Corporation sold 14 Class A, highly functional assets totaling 1.9 million square feet to Clarion Partners in the Airport submarket. • The largest speculative build of 701,900 square feet is underway by Majestic Realty. Prologis is building more than 500,000 square feet in the Central submarket, while Hyde Development kicked off the 1.8-million-square-foot 76 Commerce Center project in the “less than proven” I-76 Corridor. • Industrial land pricing has doubled in recent years to now double-digit pricing as triple-net asking lease rates approach $8 per square foot. Despite these impressive headlines, here are three reasons we expect further expansion in Denver’s industrial sector into 2019. Investor Preferences Align CBRE’s 2018 Americas Investor Intentions Survey revealed a dramatic increase in the popularity of industrial investments compared to years prior. Half of investors in the Americas are seeking …
An interesting metric was reached in the Denver multifamily market during the first quarter of 2018 — and that’s record absorption. The city already boasts accolades for quality of life, talks of strong in-migration and speculation of becoming the location for the second Amazon headquarters. After these, the most common topic of conversation for multifamily professionals is the unprecedented construction pipeline and just when will we hit an inflection point where the market won’t accept any more Class A, market-rate apartments. It seems we’re still not there. As of the first quarter of 2018, the trailing 12-month absorption was more than 10,000 units. That’s more units than what was completed in 2017 and the highest absorption on record. The result was metro-wide vacancy dipping year-over-year to 5.79 percent, limited concessions and metro-wide annual rent growth at 3.8 percent. Denver’s average rent now stands at $1,405 per unit and $1.62 per square foot. The Central Business District (CBD) experienced the most absorption this quarter, accounting for nearly 25 percent of total metro absorption. Annual rents also grew by 2.7 percent, leading the CBD to regain its title for most expensive rental submarket in Denver with rents per-unit averaging $1,835. But development …
Denver’s office market has been riding a wave of expansion, entering its ninth straight year of growth, with net absorption totaling 186,826 square feet in the first quarter of 2018. While vacancy ticked up — ending at 15.9 percent, up from 15.1 percent in the prior quarter and from 14.6 percent one year ago — it is expected to fall over the next several quarters as tenants continue to absorb space in both new and existing buildings. The Denver office market’s impressive expansion has lasted 33 consecutive quarters, resulting in a total of 9.7 million square feet of absorption, 7.4 million square feet of new deliveries and a 409-basis-point plunge in vacancy. The majority of the 9.7 million square feet absorbed between the first quarter of 2010 and the first quarter of 2018 occurred in three key submarkets. This included the Southeast Suburban (SES), Downtown and Northwest (NW) markets, which recorded 3.3 million, 2.9 million and 1.3 million square feet of absorption, respectively. The Downtown market ended the quarter with absorption of 214,317 square feet, and Class A median asking rates were up 39.5 percent from year-end 2009 to $39.76 per square foot. Asking rates in some of the newest …
Denver’s industrial market has had an impressive run so far this economic cycle – so much so that the top-of-mind-question is, “Where do we go from here?” Last year was a prolific year, attracting new investors, delivering 4.5 million square feet of Class A space and posting the fifth straight year of sub-5 percent vacancy. But the outlook for 2017 is brighter given Denver’s strong economic foundation, the arrival of e-commerce users and delivery of much-needed warehouse inventory. E-commerce Arrives in a Big Way E-commerce arrived in Denver in 2016 but is only just rolling out. Construction began earlier this year on a 1.1-million-square-foot fulfillment center, which will be the market’s largest industrial building upon completion. Several other last-mile e-commerce facilities are opening in the region that are intended to provide same-day or fresh food delivery. The local e-commerce footprint is approaching 3 million square feet in total. E-commerce companies are actively securing sites in Denver largely in response to the region’s explosive population growth. Colorado was the second-fastest-growing state in 2015, and Colorado’s Front Range communities are home to more than 5 million people. Between 2010 and 2016, Denver added nearly 1,000 new residents a week and ranked 12th …
The region is creating transformative projects that are substantially elevating the desirability of its office market five years into Denver’s strong development cycle. This trend — strongest in Denver’s Central Business District (CBD) and Southeast Suburban (SES) submarkets — is attracting a new breed of tenants to the Denver landscape. About 1.4 million square feet of Class A office space has been delivered in Denver’s CBD since 2012, with an equal amount under construction. Deliveries in the previous development cycles (1999 to2003 and 2007 to 2010) were on a smaller scale, delivering about 800,000 square feet and more than 1.5 million square feet, respectively. During the 2007 to 2010 development cycle, which had the unfortunate timing of commencing right before the financial crisis, new product struggled with pre-leasing. It took an average of 10 quarters to lease up to stabilized occupancy at 85 percent. Only one project, 1800 Larimer Street, was more than 85 percent leased in the first year. In contrast, the current cycle is much different and much stronger. The amount of square footage being added to the CBD outweighs the previous other two cycles. Leasing activity is white hot as well, with new product averaging 60 percent …
Denver’s economic growth, its reputation as a commercial hub in the Rockies and the growth in e-commerce sales are all factors contributing to the metro’s strong industrial property performance. Denver employers are on track to add 39,000 new workers to their headcounts by year end, expanding the local workforce by 2.8 percent, with the professional and business services and construction sectors driving employment gains. As household formation and retail spending has increased, demand for industrial space in Denver has followed suit. The city’s strategic position as a Western state commercial hub, along with the rapid rise in e-commerce sales, has attracted retailers and distributors, such as FedEx and Amazon, to the area. These large retailers and distributors are contributing to the high demand for industrial space, especially given the limited number of industrial property deliveries in 2015. The industrial construction pipeline is growing as a result of this demand. Spurred on by Denver’s positive economic performance, developers have expanded the industrial development pipeline, including higher levels of speculative development. About 3.7 million square feet of industrial space will have come online by the end of the year. About 1 million square feet of space was delivered in 2015. The breakneck …