Industrial Market Slows, But No Worries Yet

DENVER-After 10 consecutive years of growth, the Denver industrial market has experienced the first significant cooling off period in the first half of 2001, shows a report by Jeff Roemer and R.C. Myles, industrial brokers with Fuller and Co. The vacancy rate, when subleased space is included, rose to 7.66% in the first half of the year, compared with about a 20-year low of 5.44% at the end of 2000.

That is the highest vacancy rate since 1990, when it stood at 8.43%.

When subleased space is removed, the vacancy rate drops by about a percentage point.

Roemer says most of the subleased space is occupied and tenantscontinue to pay rent.

The industrial market is suffering from the same issues that are plaguing the office market, but the impact hasn’t been as severe.

”Due to the downturn of the dot-coms, and severe softening in the high-tech and telecommunications fields, the market experienced climbing vacancies, slowing new construction starts, negative absorption and the reduction in lease rate and sales prices,” according to the report.

During the past 12 months, sellers have been forced to drop their saleprices by close to 10%, according to the report.

”Similarly, overall cap rate ranges have risen from 8.5% to 9.55% to 9.5% to 10.5%,” shows the report.

Still, the market fundamentals remain strong, says Myles.

Even construction projects, such as the T-Rex widening and light rail addition along I-25, which promises to snarl traffic and hurt the office market, is good news for the industrial markets, because contractors willneed to store supplies, Myles says.

Roemer says a slowdown of construction to about a million sf of spec buildings –the lowest level in five years–also bodes well for the market.And falling interest rates also are helping investor returns, he says.

Ray Pittman, a senior vice president at Catellus Development, agrees. Hesays the northeast industrial market, the largest industrial submarket, continues to be strong.

”We continue to do real well there,” Pittman tells GlobeSt.com. ”We have good activity and absorption in our buildings along the northeast corridor. It’s pretty positive.”