Denver Industrial Properties Remain Attractive

"For these reasons, industrial properties are viewed as less risky and as strong, steady investments," Wafer says. "The abundance of buyers and lack of available product have driven cap rates down to the 7.5 to 8.5% range." Examples of some of the largest industrial investment transactions include the 1.3-million-sf portfolio sale from Glenborough Properties to Gateway Park for $62 million. These properties had been developed originally by Gateway Park, were sold individually to Glenborough as they were completed and leased, and now sold back to Gateway Park, headed by Bill Pauls.

First Industrial, one of the nation's largest industrial REITs, sold several properties throughout the metro area totaling 450,000 sf for approximately $25 million to different buyers, Wafer notes. Although First Industrial is actively trying to buy larger distribution buildings in the city, these properties were smaller, multi-tenant, heavy office finish product which didn't fit their portfolio criteria, Wafer explains.

Wafer notes that industrial vacancy rates hovered around 5% to 6% until 2001 when the rate rose dramatically to 7.5% and is 9.4% today. "Fortunately for our market, the significant amount of new construction during years 1997 to 2001 caused many developers to stop development and take a 'wait and see' attitude, preventing overbuilding," Wafer says. "Absorption of space increased steadily, while skyrocketing in 2000 to a record setting 6.1 million sf. Absorption levels since have plummeted, with negative absorption over the last two years."

Although absorption and overall activity was down in 2003, there still were some significant owner/user transactions, such as General Motors buying 23 acres from ProLogis at E-470 and I-70 and constructed a 404,000-sf parts distribution warehouse. United Facilities purchased 17 acres near E-470 and I-76 to construct a 330,000-sf facility for General Mills. Additionally, Catellus built a 171,000-sf warehouse for Whirlpool at the Stapleton Business Center, and in the Southeast Market, OraLabs bought the former Medtronic plant of 143,000 sf in Parker.

But the market is not heating up, as far as leasing, Wafer notes, as there were only a handful of new leases over 100,000 sf compared to a high of 14 in 2000. "Maybe 'heating up' is the wrong choice of words as the largest lease in 2003 was the result of arson, and Coremark's building in Upland Business Park was a total loss," Wafer says. "Coremark subsequently leased 140,000 sf for 10 years in the Majestic Commercenter at I-70 and Tower Road. The second largest lease also occurred at the Majestic Commercenter and was a direct result of the Atkins diet craze."

And although the leasing market has been sluggish, 2003 was a significant year as far as land acquisitions by developers, especially in the east I-70 corridor, he says. Catellus purchased 268 acres and ProLogis purchased 182 acres at the intersection of E-470 and I-70. Lowe Enterprises purchased 108 acres along Smith Road east of Tower Road, and Principal Financial acquired 53 acres at Smith Road and Airport Boulevard. Additionally, Lauth Property Group will be closing on 160 acres at E-470 and Smith Road in the next 60 days.