Denver Industrial Market Hits Bottom

The overall vacancy rate for warehouse/distribution space is 7.8%, compared with 7.1% in 2002. The average rental rate is $4.26 per sf, compared with $4.69 per sf in 2002. "Denver vacancy rates are stable and still below the national average," Kahn says. "Asking lease rates and actual rents continue to deteriorate."

Flex space, which three years ago was seen as a cheaper alternative to office space, is in worse shape. The overall vacancy rate for flex space is 12%, compared with 11.2% last year and the average rental rate per sf dropped to $7.78 from $8.84. "Lease rates have bottomed out and will begin to climb," Kahn says.

This year, about 1.5 million sf will be added to the market, less than half the 3.5 million sf added last year. And the market will absorb 862,954 sf of industrial space this year, a 218% improvement over the 270,575 sf last year.

"Developers are being very responsible," Kahn tells GlobeSt.com. "We're in much better shape than we were in the '80s, when there was a lot of overbuilding. The big developers in the market like Majestic, ProLogis and Catellus are spacing out their spec construction."

Tenants remain in the catbird seat, he says. "Tenant retention is the No. 1 priority of landlords, as landlords continue to remain motivated," Kahn tells GlobeSt.com. "Tenants continue to enjoy strong negotiating power." In 2004, tenants will "continue to call the shots," he says.

Next year, the E-470 toll road will have a bigger impact on the market, he says. He notes that ProLogis is building a 404,000-sf building for General Motors at the northeast corridor of E-470 and Interstate 70. "It is the first build-to-suit in the Denver market of 400,000 sf," he notes.

In two other large build-to-suits, Whirlpool Corp. is taking 171,300-sf and Champion Window is taking 145,000 sf, both at Stapleton Industrial Park developed by Catellus.