Industrial Market Rebounds Slightly in Q1

The modest amount of net absorption in the first quarter to a slight drop in the overall vacancy rate to 9.2%. Of the 11 submarkets, six had declining vacancy rates, while five showed mild increases. The report notes that the overall vacancy rate is below 10% and predicts that once tenant demand improves, the market will recover quickly.

The West submarket, with an overall vacancy rate of 8.6%, showed a 1.5 percentage point decline, the largest of any submarket. The highest vacancy rate was in Boulder, at 19.3%, while the lowest was in the Northeast at 2.9%. Boulder also had more negative absorption than any other sub market, with 172,302 sf. The Airport/Montbello submarket, the largest with 4.9 million sf, absorbed 309,464 sf, the most of any submarket.

Rents, however, continue to drop. Only the Central, Northwest and Southwest areas experienced rental rate increases and these were minimal at best, the report notes. Average triple net leases range from a low of $3.90 per sf to a high of $7.47 per sf. Rates are expected to remain flat during the course of the year, as owners must remain competitive to attract tenants, Grubb & Ellis notes.

On a national level, net absorption has been positive for seven consecutive quarters and has exceeded space completions for three consecutive quarters, the company notes.

"This should soon translate into positives for Denver, as the metro area generally lags the rest of the nation by about six months," according to the report. "We anticipate that tenant demand will increase by the second half of the year and will result in vacancy rate declines."

Rental rates, the company predicts, will stabilize later in the year and may rise slightly by early 2005. "Now is the time for tenants to lock-in these favorable rates," the company recommends.