Pubdate: Sat, 16 May 2015
Source: Denver Post (CO)
Copyright: 2015 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: Steve Raabe

WAREHOUSE DEMAND SPROUTING LIKE A WEED

Surging growth in jobs and legal marijuana drives high leases and low 
vacancies in Denver's industrial market.

Job growth and pot growth are fueling record high lease rates and low 
vacancies in Denver's industrial real estate market.

"Competition for industrial space in the Denver market is very 
aggressive," said Dawn McCombs, senior vice president and industrial 
specialist at the Denver office of brokerage Avison Young. "The lack 
of quality options for tenants is driving rental rates higher than I 
have ever seen."

Avison Young's market report released this week shows that 
first-quarter lease rates averaged $7.47 per square foot, up 10 
percent from a year earlier and the highest ever recorded for metro Denver.

Part of the market surge is tied directly to legal marijuana. Pot 
growers and manufacturers of cannabis-infused edibles have generated 
insatiable demand for warehouse space.

Commercial real estate tracker Xceligent Inc. last year estimated 
that marijuana cultivation and manufacturing facilities in Denver 
occupy at least 4.5 million square feet - the equivalent of 78 football fields.

While the cannabis boom has eaten up nearly all inventories of cheap 
warehouse space, highergrade "flex" buildings - which combine offices 
with distribution and manufacturing space - also are in short supply.

Occupancy and lease rates in those buildings have soared in concert 
with overall economic expansion in metro Denver.

"Population growth, job growth, increased manufacturing and consumer 
spending are contributing to the demand for space," McCombs said. 
"Buyers and tenants are frustrated that they can't locate space and 
are having to make due with their current locations, biding time 
until more space comes available."

Demand is strong enough that major warehouse owners and developers 
such as Prologis and Majestic Realty Co. are building industrial 
properties speculatively, yet landing tenants before the projects are complete.

With leases in hand for two-thirds of a new, 500,000-square-foot 
warehouse at Interstate 70 and Tower Road in Aurora, Majestic decided 
to launch development of an adjacent, $15 million spec building.

"We strongly believe that now is the time to bring the space to the 
market in anticipation of (market) growth late this year and into 
2016," said Randy Hertel, Majestic's executive vice president and 
director of development.

Current construction of 1 million square feet of industrial space in 
metro Denver "will likely not keep pace with tenant demand in the 
market," commercial brokerage DTZ said in a recent report.

DTZ said relief could come from proposed construction next year of 
another 1 million square feet at the Crossroads Commerce Park on the 
site of the former Asarco smelter near I-70 and Interstate 25 in Globeville.
- ---
MAP posted-by: Jay Bergstrom