Denver Industrial Market Report Q2 2021
The industrial sector has arguably emerged as the most resilient asset class in commercial real estate since the onset of the pandemic. Key trends have accelerated as brick and mortar retail takes a hit, such as e-commerce taking more market share, and consumers growing more accustomed to ordering online.
According to the Census Bureau, U.S. e-commerce sales jumped by 24% year-over-year through April as the pandemic and social distancing measures encouraged more online buying. Amazon is positioning itself to take full advantage of this shift in consumer behavior, both locally and on a national scale. Amazon leased 700,000 SF in Aurora in mid-March of last year as part of its plan to hire an additional 175,000 workers across the U.S. This represents 8% of Denver's total leasing activity in 2020 in a single deal.
Tenants occupied 300,000 SF in the first half of 2021. Although Denver's industrial market has enjoyed elevated demand, a robust construction pipeline continues to put upward pressure on vacancies with over 3 million SF delivering year-to-date. In the first half of 2021, the vacancy rate has risen by a full percentage point to 6.8%, its highest point in nearly a decade. Another 7.3 million is currently under construction.
After years of healthy rent hikes, rent growth in Denver's industrial market decelerated in the last year. While the market has had to contend with an ongoing pandemic, the decline was instead likely due to the onslaught of new speculative supply. Rent growth has since ticked up with an increase of 2.5% year-over-year as of 21Q2, marking a reversal after 11 consecutive quarters of decelerating rent growth. Denver rents achieved an all-time high of $10.20/SF in 21Q2, which is still at a considerable discount relative to competing markets to the west.
Despite an uncertain economic outlook nationally, investors and lenders remained bullish on the long term outlook of Denver's industrial market. Total sales approached $1.9 billion in 2020, just slightly behind the $2.1 billion recorded in 2019. Momentum has carried over into 2021.