Denver Industrial Market Report Q1 2021
The industrial sector has arguably emerged as the most resilient asset class in commercial real estate during 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 20% year-over-year as of December 2020 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.
Vacancies were below the long-term average even after 2019 shattered records with more than 6 million SF of deliveries. Another 5.5 million SF is currently under construction.
After years of healthy rent hikes, rent growth in Denver's industrial market decelerated through 2020. 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 ticked up in 21Q1 with an increase of 1.8% year-over-year, marking a reversal after 11 consecutive quarters of decelerating rent growth. Denver rents achieved an all-time high of $10.20/SF in 21Q1, 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 with $580 million in assets trading in the first four months of the year.