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DENVER-The area industrial market was a bit softer, but still strong relative to the office market, shows a third quarter report by the Trammell Crow Co. The industrial vacancy rate rose two-tenths of a percentage point to 8.22%, mirroring the increase of the previous quarter.

The report shows that areas with a high concentration of R&D flex space surprisingly experienced improving conditions during the third quarter. The Northwest (comprising Westminster, Broomfield and Louisville) and Southeast (including the Centennial, Inverness and Meridian Business Parks, the DTC and the Southeast C-470 corridor) submarkets saw vacancy decline to 10.9% and 17.3%, respectively.

The Glendale submarket’s 2.3% vacancy remained lowest in the market, while the Southeast submarket again had the highest vacancy rate in the region.

However, third-quarter net absorption dropped to 497,510 sf, following absorption of 772,081 sf in the second quarter, as the anticipated economic recovery continues to sputter.

A still considerable 1.26 million sf of industrial space was delivered during the quarter, of which approximately 53% was leased at completion, according to Trammell Crow.

The Montbello/I-70 and Northwest submarkets had the most leasing activity in the third quarter, with net absorption of 385,194 sf and 326,407 sf, respectively. Negative net absorption of 409,188 sf in the Southwest submarket was the metro area’s worst.

The average asking industrial rental rate declined $0.42 per sf on a triple-net basis, to $6.91 per sf. Boulder continues to command the highest average rate at $10.14 per sf triple-net, essentially unchanged from the second quarter, followed by the Southeast submarket at $8.80 per sf, down 1%.

Trammell Crow notes Denver’s industrial market will remain a tenant’s market until the economy strengthens appreciably.

As far as new construction, 12 new industrial properties totaling 1.26 million sf were completed during the third quarter. Slightly more than 750,000 sf were delivered in the Montbello/I-70 submarket, accounting for 60.4% of the metro area’s total. The Southeast was next, with 360,678 sf of new product.

Projected industrial development for the fourth quarter is 360,700 sf, which would bring 2002′s total to 3.02 million sf, representing an 11% decline over 2001′s total deliveries, according to Trammell Crow.

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