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CBRE Release Q1 Reports for Metro Denver’s Industrial, Retail and Office Sectors

April 30, 2018

 

 

CBRE Release Q1 Reports for Metro Denver’s Industrial, Retail and Office Sectors

CBRE just released their first quarter 2018 research reports covering the office, industrial and retail sectors for the metro area. The industrial market looks exceptionally strong. Five projects delivered in Q1 2018, adding 517,547 sq. ft. of new space to the Denver industrial market. Total sales volume exceeded $400 million. Denver’s office market posted 260,889 sq. ft. of positive net absorption in Q1 2018, with occupancy of newly delivered Class A space in the Southeast submarket as the driving force. Denver retail market remains strong despite a slow start to 2018, driven by entertainment, service retail and the food and beverage sectors.

Q1 Industrial Key Points

•Pauls portfolio sale marked Denver’s largest industrial transaction on record (1.93 MSF, 14 Class A properties).

•404,921 SF of positive net absorption was recorded, posting the 32nd straight quarter of positive net absorption.

•The overall asking lease rate rose to $7.96 PSF, up $1.77 PSF in just three years. This is a record high.

•7 MSF of space is under construction, with the largest amounts in the North, Airport and North Central submarkets.

Q1 Office Key Points

•New construction and consistent demand for high quality space drove the average direct asking lease rate to a record high of $27.06 PSF, a 2.9% increase YOY.

•Development activity slowed but remained heightened with nearly 3.1 MSF under construction. Of that, 2.7 MSF are spec projects, and of those spec projects, 41% is already pre-leased.

•Nine buildings delivered in Q1, totaling over 1.6 MSF. New construction deliveries metro-wide were 61.1% pre-leased at completion. Downtown projects were 79.1% preleased and suburban projects were 35.0% pre-leased at delivery.

•Investment activity in metro Denver reached $977.9M in Q1, an 82.5% increase year-over-year, led by the partial interest sale of 1801 California in downtown Denver for $285.6M.

Q1 Retail Key Points

•Development continues to reshape the Denver retail landscape with current construction activity at nearly 1.6 MSF.

•Quarterly investment sales volume of $271.1 million increased significantly YOY (97.6%), due in part to investor demand for value-add properties.

•Lease rates rose to $18.68 PSF NNN and vacancy increased to 7.3%.

•Owners of retail centers will continue to diversify their tenant mix to drive traffic to centers, including discount retailers, medical clinics, chef-inspired restaurants, entertainment venues and grocery stores. (Mile High CRE)

 

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Northwest Corridor Booms as Employers Chase Employees

As millennials get older and start families, they are increasingly leaving cities for the suburbs in search of more affordable homes that offer more space. That is making communities like Westminster, Broomfield and Lafayette in metro Denver’s Northwest Corridor increasingly more enticing. “They want to be on the west side of town,” Koelbel and Co. Vice President Carl Koelbel said. “That’s beachfront — that’s how they get to the mountains. That market could see a lot of growth in the millennial population, and that will further drive employers wanting to be there.” Koelbel and Co. has been working in the Northwest Corridor since 1996 when it purchased Centennial Valley, a 175-acre office and retail complex off of U.S. Highway 36 in Louisville. Centennial Valley has been successful because it is less expensive than either Boulder or Denver and has access to an educated workforce, Koelbel said. “Boulder is pricing a lot of companies out of their market, but employees still live in that area,” he said. “They’re looking to relocate out of Boulder, and we provide that option to them.” In addition to Louisville, Koelbel is working with Mile High Development President George Thorn on Eaton Street Apartments, a mixed-use project that includes 118 affordable apartments wrapping an 800-vehicle parking garage in the new downtown taking shape in Westminster. Over the next two years, more than 1M SF of development and $240M of private investment will be built on the site of the old Westminster Mall, which was razed to make room for an urban center in the more-than-100-year-old community. The city is building Central Square, a $5.5M, 1.2-acre plaza that will host up to 200 events annually. Minneapolis developer Sherman Associates is building a five-story residential and retail project called Ascent at Downtown Westminster. It will include 24K SF of retail, 255 residential units, including 10% workforce housing at rents lower than market rate, and underground parking. Sherman also has started work on a second mixed-use project just off Central Square. Other projects in the works include an Alamo Drafthouse and Origin Hotel, which will house a 9K SF Marczyk Fine Foods market in its lobby. “We are lacking one thing, and that’s a downtown,” Westminster Mayor Herb Atchison said. “Now we have one under construction.” Atchison said the city still has several other large tracts of land within the city limits that are available for development. He said the city has committed to setting aside 15% of its area as open space. Another 15% has been designated as undevelopable and can only be used for parks, trails, golf courses and recreation centers. “We’re looking at quality growth and controlled growth and making sure we can meet the needs of our citizens,” he said. “We will grow vertically, not horizontally.” Thorn said the municipalities in the Northwest Corridor have been easy to work with and are recruiting companies to the region. For example, Maxar Technologies, which acquired Westminster-based DigitalGlobe in October, recently announced plans to relocate its headquarters from San Francisco to Westminster, which amended a 10-year, $6.2M incentive offered to DigitalGlobe in 2013. The city extended the agreement for five years to 2028. Maxar will be within the DigitalGlobe business unit facility. DigitalGlobe employs 1,000 people, with 800 of them in the Westminster facility. The move of Maxar’s headquarters and growth in DigitalGlobe is expected to result in the addition of about 800 jobs over the next eight years. “Both Westminster and Broomfield are very progressive-thinking, development-oriented cities,” Thorn said. “Virtually at every interchange there’s something important that’s happened. If you look behind the curtain, the cities have been very involved.” (Bisnow)

 

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Metro Denver Apartment Rents Are Up in 2018, Snapping Three Quarters of Declines

For most of last year, apartment rents moved lower and vacancy rates rose as thousands of new apartments hit the market in metro Denver. But the streak, which ran three quarters, was snapped in the first three months of this year after average apartment rent in metro Denver rose 1.7 percent, or $24, from the fourth quarter to $1,420, and the vacancy rate fell to 6.1 percent from 6.4 percent, according to the Metro Denver Vacancy & Rent Report published by the Apartment Association of Metro Denver. The rent gains and tighter vacancy came despite the addition of 2,443 new apartments in the first three months of the year, which is down from the 3,246 added in the first quarter of 2017. “Rents almost always increase in the first quarter of the year,” Mark Williams, executive vice president of the association, said in a statement accompanying the quarterly report. The last time average rents fell in a first quarter was at the start of 2009, following the financial crisis. Despite the rent increase, other signs pointed to landlords having to bargain harder to keep their units filled. The concession offered by landlords shaved $81 off the typical monthly lease in the first quarter, up from concessions that averaged $64 per month in the fourth quarter. Factor in higher concessions and first quarter “effective” rents were up $7, or just 0.5 percent, to $1,339 a month from the fourth quarter. For the past year, effective rents are up 3.2 percent, which is about the pace of inflation. Williams notes that there were 13,348 apartments completed last year and a similar number are expected to hit the market this year, which should continue to put downward pressure on rents. (Denver Post)

 

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CURRENT

1 MONTH PRIOR

1 YEAR PRIOR

FED TARGET RATE

1.75

1.75

1.00

3 MONTH LIBOR

2.36

2.30

1.17

PRIME RATE

4.75

4.75

4.00

10 YEAR TREASURY

2.96

2.77

2.28

30 YEAR TREASURY

3.13

3.01

2.96