New product drawing developers.

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What area is your expertise?
I specialize in the sale and lease of industrial buildings and land in the Denver Metropolitan area.

What trends do you see presently in industrial development in your area?
Speculative construction is still ongoing in the industrial sector. The demand for functional office/warehouse, distribution and condominium warehouse buildings remains stable which has prompted several local and national developers to bring new product to the market this year. YTD deliveries and anticipated third quarter completion of speculative construction include:

East I-7-/Montbello industrial submarket
Whirlpool Building — 410,000 square feet (Panattoni Development Co.)
Mile High Business Center — with a 337,000-square-foot building and a 90,000-square-foot building (Panattoni Development Co.)
Airways Business Center — with an 83,225-square-foot building, a 79,650-square-foot building and a 57,630-square-foot building
Majestic Commerce Center — with a 215,000-square-foot building (Majestic Realty Co.)
Enterprise Park at Stapleton — with a 153,035-square-foot, a 148,90-square-foot, and 139,695-square-foot building (Etkin Johnson)

Northeast industrial submarket
OmniCenter — with two 38,240-square-foot buildings (Landmark Properties Group)

Southeast industrial submarket
Compark Commerce Center — with a 62,000-square-foot building (Urban Construction, Inc.)
Corporate Park at Stonegate — with a 44,700-square-foot and a 37,580-square-foot building (Ascendant Development)
Twenty Mile Commerce Center — with a 23,460-square-foot building and a 31,630-square-foot building (Panattoni Development Company)

West industrial submarket
Lakemont III — with a 53,000-square-foot building (Central Development)

Northwest industrial submarket
CTC – 1775 East Cherry St. — with a 130,182-square-foot building (Etkin Johnson Group)

Southwest industrial submarket
Ken Caryl Business Center — with a 36,130-square-foot building
The Ridge at Southpark — with a 24,900-square-foot condominium building (MIE Properties, Inc.)

What type of industrial product is doing well in your area?
Properly priced properties whether for lease or sale are still experiencing good interest from buyers and tenants. Market demand continues to pursue the best value (most aggressive price) in the market.

Who are the active industrial developers in your area?
Panattoni Development Co., Etkin Johnson Group, Majestic Realty Co., MIE Properties and Ascendant Development.

Where is the majority of development taking place? Why is this area doing well?

The majority of the bulk distribution product being developed is occurring in the Northeast industrial submarket. This product serves companies that require higher warehouse clearance, ESFR sprinklers and a corporate image. Second are well located projects in suburban markets that are in close proximity to business owners’ residences.

What area do you expect to be the next big industrial development market? Why?
In a marketplace where energy costs continue to rise or have stabilized at higher levels, energy efficiency and logistics are the mantra of business today. All product types will be required to move towards more energy efficient lighting, heating and cooling, better insulation and other “green” measures. Furthermore, we anticipate companies will seek more central locations in an effort to offset higher fuel and energy costs.

Please describe the industrial leasing activity in your area.
Overall, leasing activity has slowed but is stable in 2008. Many tenants are opting to renew rather than relocate and Landlords are doing their best to keep their existing tenants.

Please describe the industrial sales activity in your area.
The user sale market (owner-occupied facilities) has slowed to approximately half the number of sales in 2007 compared to YTD 2008, though the average value of these sales have continued to increase $68.33/square foot on average.

Please give a measure of industrial vacancy rates and a measure of available sublease space.
Industrial vacancy has only slightly moved up at the end of the second quarter, which is now at 7.8 percent. Lease rates continue to increase at modest rates with the average asking rate for industrial and flex space at $6.47/square foot NNN.

What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in the next year?
Interest rates continue to be on the low end of historic ranges and are not impacting buyer’s ability to purchase properties. The difficulty in obtaining financing in the marketplace has come from lenders that are adjusting their commercial loan portfolios (almost weekly) thereby modifying their down payment requirements of buyers. Lenders are attracted to owner occupied properties.

What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected?
The Northwest and North industrial submarkets are in the sights of many developers as “old energy” and “new energy” companies continue to expand. These submarkets have demographics that serve these industries and provide opportunities to developers and employers. A great deal of demand is stemming from renewable energy, recycling and engineering firms.

Would you like to make any additional observations about the industrial market in your area?

The industrial real estate, though slowed, remains stable in Denver. The influx of renewable energy companies will continue to drive this marketplace along with Denver’s strong oil and gas industry. Companies that service these industries, in addition to the return of manufacturing in the USA will be the strong facets of the Denver market in the years to come.

Submitted by Craig Myles, CPM, SIOR, senior vice president at Fuller Real Estate in Denver.

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