What do Pepsi Co, Coca-Cola, Dollar General, and Whole Foods have in common? Each company has recently announced plans or broken ground on manufacturing plants and distribution sites surrounding Denver International Airport. Due to its centralized location and access to the largest airport in the country, Denver has become a booming distribution and logistics hub. The expansive industrial market totals 262M square feet and currently has 9.9M square feet under construction.
The team at Rockval collaborated with Eric Fritzke, Owner/Team Leader at the Trinity Team in Denver, CO, to get an insight into the industrial market conditions. Fritzke and his team cover all asset classes and have over 25 years of professional experience in the Denver market.
The first quarter of this year now marks the third consecutive quarter with a decline in leasing volume. Overall it is a 21% decrease in leasing activity year-over-year; the first quarter totaled 1.9M square feet in leasing volume. With our data set from Compstak, we can visualize the overall decrease in leasing volume YOY; the peak of leasing volume occurred in 2021.
According to Fitzke, the average vacancy rate for the market is 6.6%, but with a slowdown in development is expected to decrease throughout the year. The slowdown in development is primarily attributed to the increase in construction costs. According to the North America Quarly Construction Cost Report by RLB, Denver's construction cost index rose 1.28% during the year's first quarter.
Average net market rents are around $11.76/PSF, and despite the rising vacancy, rents increased 10% YOY. Investment sales volume has also decreased as a result of economic headwinds and a lack of capital. But according to Fritzke, owner-occupier investment demand has remained strong. Denver's lower cost of living and outdoor lifestyle has attracted new residents for years; on average, the MSA gains up to 50,000 new residents per year. The new residents have brought along their businesses, furthering the demand for small bay industrial.
Denver's Industrial boom happened 10 years ago when it was the first state to legalize recreational cannabis. Industrial properties were needed for the growing, distribution, and storage of products. But Interestingly enough, Fritzke has seen an increasing amount of "grow space" come back into the market; the market is retracing from the highs. Nevertheless, the continual population growth and increasing demand from large corporate clients will bode well for this market even through an economic downturn. What are your thoughts on the Denver market?
Coca-Cola: https://www.denverpost.com/2023/04/01/coca-cola-bottling-plant-denver-airport-dia
Whole Foods: https://www.bizjournals.com/denver/news/2022/09/20/whole-foods-distribution-center-denver-airport.html
Dollar General: https://www.denverpost.com/2022/08/18/dollar-general-aurora-massive-distribution-center/
DHL: https://www.ajot.com/news/dhl-express-expands-in-denver-with-second-facility
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Omaha is most notably known for hosting Berkshire Hathaway's headquarters, but to one's surprise, in CNBC's Top Business States Ranking, Nebraska was #7. The low cost of business and centralized location in the midwest has attracted many new companies and commercial development. As a result, the metro continues to see job growth, with unemployment down 2.7% year over year.
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Greater Boston is home to over 118 colleges and 346,000 students, making it the city with the fourth-highest concentration of colleges in the United States. Universities, healthcare, and finance drive the metro's economy, but additional housing is desperately needed. The metro is undersupplied by 77,000 units, leading investors to redevelop office space, factory buildings, and more into residential space.
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The multifamily market's current rhetoric is a swirling cycle of good, bad, and ugly. There still is a housing shortage, rents are declining, capital has dried up, and the Federal Reserve is still raising rates. As an investor, how do you navigate these circumstances? The team at Rockval spoke with Bobby Larsen, Principal of Vanamor Investments, to get his insight on the current market conditions. Larsen has over 16 years of multifamily experience, initially starting his career at PIMCO and eventually moving to MG Properties Group. As the Director of Acquisitions at MG Properties, Larsen helped grow their portfolio from $500 to $4.5 billion AUM during his seven-year tenure.
