The Rationale for Focusing on Manufacturing Growth in Colorado
This article originally appeared in Colorado Biz Magazine. See it here.
Good fortune continues to smile on the Colorado economy, both for employers and the people that help make their businesses successful. In fact, Colorado is the second-fastest growing state in the U.S. with a net 75,700 new residents in 2019. New job creation for the year clocked in at an amazing 56,600 new jobs, driving Colorado’s unemployment rate to somewhere between 2.5 and 3.0 percent, which is well below the national average.
Plus, the real estate market continues to exhibit healthy signs. Overall positive absorption along the Front Range for 2019 was right at 3 million square feet – an ‘average’ year since coming out of the slump from 2009 to 2011. A flurry of new industrial development – over 4 million square feet of development was delivered in the third and fourth quarters of 2019, accompanied by an expected 6 million square feet to be delivered by the end of the second quarter of 2020 – has caused our vacancy rate to climb from 4.5% to nearly 6%. The overwhelming majority of this new construction is distribution space, both infill e-commerce sites and larger developments on the eastern I-70 corridor.
For manufacturers, the story is a little different. Space is tight, particularly for smaller businesses who typically occupy older stock. As manufacturers grow, they tend to occupy newer buildings, and then, as they continue to grow, they consider either built-to-suit spaces or newer and larger speculative space (that would also be suitable for a distribution company). Manufacturing buildings constitute just under 20 percent of the overall industrial stock with a vacancy rate of 2.4 percent.
It’s interesting to note that as industrial real estate advisors, we find ourselves helping to solve non-real estate puzzles. Specifically, labor has become a key issue for employers; with Baby Boomers aging out of the workforce and productivity unable to take up the slack, the challenge of finding qualified people is a common theme we hear from our clients. We are also engaged in researching infrastructure needed to support our client’s operations – telecom, water and electric grids, rail, etc. All of which is to say that today, a qualified real estate advisor needs to have platform from which to call on expert advice in a wide range of disciplines.
Growth in manufacturing needs to be at the forefront of Colorado’s economic initiatives. Given our location and (lack of) population density, we will never become a distribution hub like Dallas or Atlanta. Yes, we possess extractable energy resources and lots of farmland, but the markets, weather and ever-changing regulation make those businesses a less reliable base for economic expansion and job creation.
Education, infrastructure development, economic incentives and sensible regulation will all play a part in helping manufacturing businesses grow and thrive in Colorado.