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DENVER-The area industrial market is showing signs of life, but thesluggish economic recovery will restrain the strength of its comeback,according to a third-quarter report by the Trammell Crow Co. “The market has clearly moved into recovery mode, as evidenced by positivenet absorption and falling vacancies,” according to the recent report.

“However, the recovery has not been vigorous enough to date to backfill second-generation space, keeping vacancy declines slight and rents soft,” the report adds. Trammell Crow notes the Denver Regional Council of Government, or DRCOG, forecasts annual job growth of 1.3% over the next 20 years. Trammell Crow describes that as “respectable,” but notes it can’t hold a candle to the 3.5% to 4.5% pace of the boom years of the 1990s.

One aspect of the market that bodes well is that there has been little construction activity. Only one project, with 21,000 sf, was completed in the third quarter, which brings the year-to-date total of new construction to just more than 1 million sf, according to Trammell Crow. About 700,000 sf of the space is still under construction. New space construction is down 23% compared to the same period last year, keeping the market from further eroding.

Demand, however, is mixed at best. Employment in transportation and warehousing is up 0.6% in the first nine months of the year, manufacturing and construction have declined 2.1% and 6.7% respectively. And flex space continues to languish, according to Trammell Crow, as the number of people employed in the information sector is down 3.8%.

The company goes on to note that absorption through the third quarter hit 667,507 sf, a marked improvement over the negative absorption of 394,147 sf during the same period last year. The Southeast submarket absorbed 168,725 sf, the most of any geographic area, while Boulder performed the worst, with negative absorption of 124,702 sf.

The overall direct vacancy dropped 20 basis points to 9.4% in the third quarter, which is the first decrease since the second quarter 2003. With subleased space factored in, however, the vacancy rate rose to 10.5%, however. “It is notable that sublease space plummeted 17.8% to 1.96 million sf during the quarter,” Trammell Crow notes.

Meanwhile, rental rates are beginning to firm. Following a drop of 1.7% in the second quarter, the average asking rental rate dropped just $1.01 in the third quarter to $5.89 per sf. “However, lagging demand for second generation space and for flex/R&D space is keeping the overall rate relatively soft,” according to the report.

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