Sperry Van Ness International Corporation’s (SVNIC) 2015 Market Update Reports assess the current state of the national commercial real estate market, and identify micro-trends within specific geographic regions and industries for 2015. Today we are delving into the 2015 Top Industrial Markets to Watch. Not the largest or the most actively contested markets, the 2015 Industrial Markets to Watch are each at an important juncture that presents unique opportunities for investment. Together, they reflect the diversity of trends that is driving the economy and commercial real estate performance in markets across the country.
Top Industrial Market to Watch: Denver, CO
The Denver industrial market is reaping the dividends of the state’s move to legalize marijuana production. Demand for space in Denver itself, where production is permitted, pushed the vacancy rate below 3% in late 2014, the lowest level on record. The surge in demand amounts to a positive shock of between 3.5 and 5 million square feet, according to different sources. Developers are responding slowly, with roughly 1 million square feet of space currently under development. That imbalance augurs continued strength in rent gains; the sector’s greater liquidity, borne out by higher transaction volumes, suggests resilience in asset values once interest rates begin their upward hike.
In spite of its visibility, marijuana production represents a tiny fraction of industrial space leases in the Denver area. The strength of the local economy — the unemployment rate is below 4% as of early 2015 — is supporting demand across light manufacturing, distribution and logistics, and warehousing. Investors will find the market’s rosy outlook commands a high price. Cap rates in Denver declined to an average of 5.7% in 2014 across property sales and refinancing activity, lower than some coastal gateways including Washington, DC and Boston.
To read more on Denver and other top industrial markets, download the full version of the 2015 Industrial Market Update report here.
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