Six Denver submarkets saw a slight overall uptick in vacancy during 2005, with only two submarkets posting significant declines in available space compared to a year ago.
On a positive note, this trend was reversed during the fourth quarter, with seven submarkets declining by an average of 57 basis points.
Quarterly absorption increased to 600,000 square feet, boosting annual net absorption to more than half a million square feet.
If fourth quarter momentum continues, it could prove to be a running start for sustained positive activity in the coming year.
Both new prospects and existing tenant activity have increased substantially during the second half, lending credence to this possibility.
Market Assessment
The fourth quarter showed a solid closing, registering more than 600,000 square feet of net absorption.
This provided a significant boost to the market as a whole, bringing year-end totals up to more than 500,000 square feet, half of last year’s total.
Several submarkets have seen activity pick up this year. Others experienced negative annual absorption, due to a variety of factors, but heavily influenced by the departure of companies that were bought, as well as a few cases of corporate bankruptcy.
The greatest percentage of leasing activity was for in research and development/flex space and general industrial properties.
R & D; space enjoyed the resurgence of the biotech and bioscience industries, as well as overflow from some traditional office tenants, who took advantage of the lower lease rates in this space at a time when office rates were increasing.
Construction activity remains stable, with nearly every submarket awaiting the arrival of various build-to-suit, condominium and small-user spaces.
This construction should have a limited impact on vacancy rates, as many of these types of spaces are in short supply, despite overall high vacancies.
Until the market can generate stable forward momentum, lease rate increases will be limited to specific product types or specific submarkets.
Rental rates on average increased by just 4 cents, while most submarkets saw flat asking rates throughout the past year.
There was a slight increase in rental rates during fourth quarter, which accounted for 2 cents of this annual increase.
The largest percentage of vacant space remains concentrated in the largest buildings, a trend also occurring nationally.
In Denver, because buildings greater than 500,000 square feet tend to be corporate users, the greatest vacancy lies in the 150,000- to 250,000-square-foot range, where more than 15% of space is vacant, compared to 6% in buildings under 25,000 square feet.
Distribution and warehousing made up nearly 60% of industrial space leased last year, far above the second highest category, manufacturing, which made up 25% of leases.
Productivity in the manufacturing sector is improving, as demonstrated by the growth in manufacturing purchasing in the past year, despite 20% fewer workers in the sector than in 2000.
Forecast
For 2006, the industrial market will continue to post lower vacancy coupled with stable or slightly increased rental rates for multi-tenant and newer space. Value-priced spaces also will continue to see heightened tenant interest.
Leasing activity will continue to be concentrated in small to midsize tenants.
Rental rates will increase, although at a slower pace.
