Industrial Market Flashing Back to 1990s

However, the minor improvement in the vacancy rate hasn't been enough to budge lease rates, which have remained flat, averaging $3.50 per sf, on a triple net basis.

The lowest vacancy rate, with subleased space, is found along the 24.3 million-sf Southwest market, where 4.1% of the space is available. Despite the low vacancy rate, the Southwest market has 114,317 sf of negative absorption in the first half of the year. The highest vacancy rate is in the 18.69-million-sf Southeast Market, where the vacancy rate is at 15.3%. That market showed 115,957 sf of positive absorption in the first six months of 2004.

Tenants include suppliers to residential construction, vendors to public improvement projects such as the T-Rex widening and adding light rail along Interstate 25, and the doubling of the size of the Colorado Convention Center. "Service distribution and logistics companies lead the way for industrial user activity," the report notes. "Landlords continue to be very aggressive in renewing and retaining their tenants."

The report notes that similar market conditions were experienced in the early to mid-1990s, when the market was regaining its footing after the real estate collapse. A "very robust seven-year-industrial expansion," started in the 1990s, Fuller notes.

One thing that is helping the market is a relatively small amount of construction. "There are only a few industrial developers willing to build speculatively in today's market," the report notes. "Spec projects begun during the first half of the year totaled only 372,000 sf, compared to 3.5 million sf to 4 million sf per year during the late 1990s. In fact, the last time Denver experienced spec development activity of less than 1 million sf was in 1995. The lower construction activity should help raise rental rates in the future."