M A R K E T B E AT

ECONOMIC OVERVIEWDenver’s economic fundamentals maintained their strength through the end of 2019. Consistently ranked among the best economies and best places to live in the country, the metro continues to attract a highly skilled workforce and an increasingly diversified tenant mix as well. Denver added over 44,700 jobs year-over-year as of November ac-cording to BLS, and closed 2019 with an unemployment rate of 2.6%. This figure represented a 20-basis point (bps) decrease quarter-over-quarter and continued to outpace the national average of 3.6%. Denver has cemented itself as the clear choice for doing business in the Rocky Mountain region and is well-positioned for continued growth enter-ing 2020.

MARKET OVERVIEWVacancy in industrial product declined marginally across the Denver metro area during the fourth quarter 2019, closing at 5.8% on an overall basis. This figure represented a 10-bps decrease quarter-over-quarter, but a 110-bps increase year-over-year. This year-over-year change was the result of a 90-bps spike in vacancy during the third quarter 2019 as a result of nearly 2.1 million square feet (msf) of speculative product delivering with only 21.5% pre-leasing. New speculative product has recorded slow preleasing activity but strong activity upon delivery during the current industrial construction boom and we expect this space to continue to lease up over the next several quarters. However, with more than 4.5 msf of speculative product remaining under construction across the metro area, vacan-cy should continue to fluctuate quarterly but remain mostly flat over the next year.

Overall average asking rental rates across all industrial product types rose during the fourth quarter 2019, closing at $8.76 per square foot (psf) on a triple net (NNN) basis. This figure represented only marginal growth of $0.06 quar-ter-over-quarter but was a more substantial increase of 5.0% year-over-year when the market recorded overall rents of $8.34 psf NNN to close out 2018. New construction continues to be the primary driver for rent growth across the metro area and more than 5.4 msf delivered over the course of 2019, the second highest total for any year on record. As demand has shown no signs of slowing, expect rents to continue to rise into 2020, though at a more moderate pace than the torrid growth exhibited over the past several years.

Leasing activity was strong to close the year as nearly 2.9 msf leased during the fourth quarter 2019 which brought total leasing activity for the year to 10.1 msf. First Aurora Commerce Center recorded the largest lease of 2019 during

5.8%Vacancy Rate

1.4MNet Absorption, SF

$8.76Asking Rent, PSF

ECONOMIC INDICATORSQ4 2019

2.6%

12-Mo. Forecast

Denver Unemployment Rate

1.5MDenver Employment

3.6%U.S. Unemployment Rate

12-Mo. Forecast

SPACE DEMAND / DELIVERIES OVERALL VACANCY & ASKING RENT

YoY Chg

Source: BLS

YoY Chg

Overall, Net Asking Rent

DENVER, COLORADOIndustrial Q4 2019

6.3MUnder Construction, SF

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2015 2016 2017 2018 2019

Net Absorption, SF Construction Completions, SF

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

2015 2016 2017 2018 2019

NNN Asking Rent, $/SF Overall Vacancy Rate

M A R K E T B E AT

ABSORPTION VS. RENT

OVERALL VACANCY

LEASING ACTIVITYOutlook

• The construction boom continues across Denver and preleasing activity continues to be limited while newly delivered space has tended to lease quickly. Expect vacancy to fluctuate quarterly, but remain largely flat over the next year as this space delivers vacant and leases up.

• There are a number of large requirements in the market considering BTS projects. With an abundance of such opportunities available, it would not be surprising to see a surge in the amount of BTS projects under construction over the next 12 months.

• Investment sale activity for industrial product around Denver continues to accelerate. Expect 2020 sales volume to surpass the billion-dollar mark once again.

DENVER, COLORADOIndustrial Q4 2019

the fourth quarter as an undisclosed user leased all 555,800 square feet (sf). Also noteworthy was Terumo’s 169,600-sf lease at Parc Santa Fe as they leased all of Building B. These two leases exemplify the aforementioned trend of poor preleasing but strong activity upon delivery as both buildings deliv-ered fully vacant during 2019 but were fully leased by year’s end. The Northeast submarket continues to dominate industrial leasing activity and with development continuing to surge there and thousands of acres available for further development, expect this trend to continue for the foreseeable future.

Overall net absorption rebounded significantly during the fourth quarter 2019 as the more than 1.4 msf absorbed surpassed the first three quarters of the year combined. This brought total net absorption for 2019 to just over 2.6 msf. While this yearly total represented the lowest annual total since 2010, the fourth quarter 2019 was more indicative of demand in the market and what to expect moving into 2020 as leasing activity has remained near all-time highs. Expect 2020 absorption to comfortably sur-pass 2019’s total, aided by new speculative space delivering vacant as well as tenants taking occupan-cy of leases already signed in 2019.

The construction boom in industrial product around Denver continued its unprecedented pace as 992,000 sf delivered during the fourth quarter 2019, which brought the total for the year to more than 5.4 msf. This figure trailed only 2017 as the largest single year for deliveries on record. This pace will not slow down in 2020 either as nearly 6.3 msf remained under construction across the metro area to close 2019. Speculative product has defined this development cycle, but as competition amongst speculative developments intensifies and rising development costs reach a point where build-to-suit (BTS) projects are more financially feasible for many tenants, expect BTS projects in the pipeline to increase during 2020.

Sale ActivityThe industrial investment market remains red hot in Denver as the fourth quarter 2019 recorded $311.9M in sales volume. This brought the year end total for 2019 to $1.4B, a figure which exceeded the industrial investment sales volume record set in 2018 for the Denver metro area. Annual investment sale volume has now increased ten of the past eleven years, indicative of Denver’s attractiveness to investors. Expect investment sale activity to remain strong throughout 2020.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

2014 2015 2016 2017 2018 2019

Q1 Q2 Q3 Q4

0%

1%

2%

3%

4%

5%

6%

7%

2015 2016 2017 2018 2019

Five Year Historical Average = 4.9%

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2015 2016 2017 2018 2019Net Absorption, MSF Overall Asking Rate, $PSF (4-Qtr Trailing Avg)

M A R K E T B E AT

UNDER CONSTRUCTION Q4 2019PROPERTY SF OWNER/DEVELOPER ESTIMATED COMPLETION SUBMARKET

Shamrock Foods BTS 900,000 Shamrock Foods / Majestic Realty Q4 2020 Northeast

Stafford Logistics - Bldg 1 599,000 NorthPoint Development Q3 2020 Northeast

Karcher North America 380,000 Karcher / SunCap Property Group Q1 2020 Northeast

76 Commerce Center - Bldg 4 352,240 Hyde Development Q2 2020 Northeast

Colorado Logistics Park - Bldg D 330,250 Brennan Investment Group Q2 2020 Northeast

KEY LEASE TRANSACTIONS Q4 2019PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET

First Aurora Commerce Center 555,840 Confidential Direct Northeast

Stapleton Business Center 261,027 HD Supply Renewal Northeast

Parc Santa Fe 169,590 Terumo Direct Southwest

Majestic Commercenter - Bldg 1 140,530 Fenix Outdoor Direct Northeast

Gateway Park - Bldg 3 121,189 Whole Foods Renewal Northeast

KEY SALE TRANSACTIONS Q4 2019PROPERTY SF SELLER/BUYER PRICE SUBMARKET

Denver Distribution Portfolio 633,193 Link Industrial Properties/ASB Capital Management $72,250,000 ($114) Northeast

Parc Santa Fe 345,126 Jackson Shaw/La Salle $58,000,000 ($168) Southwest

Monaco I-70 Industrial Park 183,319 Monaco I-70 Industrial LLC/Stockbridge Capital $27,350,000 ($149) Northeast

Aspen Industrial Park 38,263 Ivy Realty/Fred Alger & Co $15,500,000 ($405) Northwest

Crossroads Distribution Center 150,245 KEW Realty Corp/BKM Capital Partners $14,800,000 ($98) Northeast

MARKET STATISTICS

SUBMARKET TOTAL BLDGS

INVENTORY (SF)

SUBLET VACANT

(SF)

DIRECTVACANT

(SF)

OVERALL VACANCYRATE (SF)

QUARTERLYOVERALL NETABSORPTION

(SF)

UNDERCNSTR

(SF)

OVERALL WEIGHTED AVG

NET RENT (W/D)

OVERALL WEIGHTED AVGNET RENT (MF)

OVERALL WEIGHTED AVG

NET RENT(FLEX)

Central 995 44,177,798 128,513 2,402,421 5.7% 400,109 414,518 $7.84 $14.30 $13.91

Northeast 1,492 105,721,894 697,966 6,469,377 6.8% 722,811 3,837,349 $5.96 $6.13 $10.45

Northwest 933 48,838,920 116,748 2,153,682 4.6% 352,718 389,016 $10.01 $11.34 $12.33

Southeast 484 21,790,556 160,953 1,208,583 6.3% -11,681 1,264,907 $9.76 $8.86 $11.89

Southwest 804 28,133,523 30,828 937,639 3.4% -50,660 366,000 $9.90 $8.94 $10.96

DENVER TOTALS 4,708 248,662,691 1,135,008 13,171,702 5.8% 1,413,297 6,271,790 $7.22 $9.69 $12.07 *Rental rates reflect weighted net asking $psf/year FLEX = Office Service/High Tech MF = Manufacturing W/D = Warehouse/Distribution

DENVER, COLORADOIndustrial Q4 2019

*Sales are sorted by $$$

M A R K E T B E AT

470

470

47025

85

285

6

25

76

70

70

270

36

76

70

470

DenverInternational

Airport

DENVER

NORTHWEST

LAKEWOODAURORA

BOULDER

LONGMONT

NORTHEAST

SOUTHEASTSOUTHWEST

INDUSTRIAL SUBMARKETS

cushmanwakefield.com

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATIONCushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

MICHAEL COPPOLAAssociate Market DirectorTel: +1 303 312 4212michael.coppola@cushwake.com

TIM MORRISSenior AnalystTel: +1 303 218 3256tim.morris@cushwake.com

DENVER, COLORADOIndustrial Q4 2019