Slowing Down, But Not Stopping: Bisnow’s Denver Industrial Update

Long known as one of the fastest-growing industrial markets, Denver is now following suit with the rest of the nation and is starting to see leasing activity slow down. However, this hasn’t affected the momentum in the sector.

Despite the slight drop in demand, the Denver industrial market is on pace to deliver a historic amount of square footage this year, coming in at nearly 13M SF. That’s more than 5% of the market’s total existing stock.

“Although some areas of industrial demand in the Denver market are slowing, the overall momentum remains strong," Catamount Constructors Denver Division President Mark Barton said."Catamount’s dedication to going above and beyond for our clients and our significant pre-construction expertise means we can help our clients think creatively about how projects can work and support them through this ever-evolving market."

Catamount Constructors is a 100% employee-owned, general contracting and construction management company with offices in Colorado, Florida, Georgia and Texas. The firm has completed more than 500 industrial projects, valued at $4B across 36 states.

To learn more about the Denver industrial market, Bisnow spoke with Catamount Vice President of Business Development Rick Rodman and Vice President of Preconstruction Chris Yancey about the trends the sector is seeing, what projects the team is working on and how economic factors have impacted market performance.

Rodman will be speaking at Bisnow’s Denver Industrial Update conference on May 31, alongside other Denver industrial real estate leaders and professionals. Register here.

Bisnow: Can you describe the growth that the Denver industrial sector witnessed last year? Will this growth continue in 2023?

Rodman: We're seeing the spec market starting to slow down, but build-to-suit projects are still going strong, as long as they’ve got the proper financing. I think that's the primary focus of the developers right now: securing financing for these types of projects and knowing their end client from the get-go. We’re currently working on some pricing exercises with clients for Denver-area projects to support them and think creatively to make the project come together.

Yancey: We saw growth during the first part of last year, but then we saw it start to tail off in the latter half of the year. Growth is still positive, but the pace at which it is running has changed. This year, growth is going to moderate, as deals have slowed down quite a bit with clients and developers needing to be creative with project financing.

Bisnow: What industrial project has the team been working on in Denver? 

Yancey: We're wrapping up a 386K SF project for Home Depot in Mead, Colorado, with Broe Real Estate Group. It’s a flatbed distribution, rail-served facility — meaning there is a rail system going into the building. This was a very unique and challenging project for us, and I think we’re going to start to see a lot more rail-served warehouses across the country. The direct integration of freight railroad services into the project design leads to reduced transportation costs for the client, while increasing transportation safety.

We were awarded the job during the early planning stages of the facility, so we provided design-assistance with the entire architectural, structural and civil teams to help maintain budget and schedule. Home Depot is a client that knows what they want, and being a build-to-suit, we had to make sure that ourselves, the developer and the architect were all in line to serve Home Depot's needs.

Rodman: Home Depot and the developer, as a team, worked through a process that took about six months of pre-construction and planning before we even started the project. That job was unique in that the building actually slopes because there was a lot of rock on the site. We wound up sloping the slab 0.4% — it drops about 3 feet from one end to the other, which added some challenges. By taking this creative approach, we were able to avoid significant site work costs for our client to bring in additional dirt and rock to level the site.

Bisnow: How have economic factors like inflation, supply chain shortages and interest rates impacted the Denver industrial market and Catamount’s projects?

Yancey: The supply chain has affected us greatly. With the Home Depot job, we had to overcome major delays on material delivery and we’ve had to get creative with it, like ordering some high-demand items for our clients in advance of their project start. Although, in recent months, we think the supply chain has improved greatly. Roofing delivery isn't really a problem anymore and wait times for joists and decks have become a lot shorter. However, we have not seen the pullback for electrical parts yet, as switch gears and generators are still a year out. We are trying to help developers stay ahead of the supply chain issues.

Rodman: Inflation has also affected us over the past few years. As the economy is starting to slow, we are seeing material prices drop right now. We made a decision, as a company, a few years ago to get ahead of these long lead items and purchase and store them. We did this with roofing material and switchgear. This has helped our clients get to the finish line more quickly.

Bisnow: What current or future trends should CRE investors/developers be aware of in the Denver industrial market? 

Rodman: Denver is following suit pretty closely to the rest of the country. There's three or four trends that everybody's seeing right now. Leasing activity has slowed down a bit and rents continue to go up incrementally. Project financing has also become tough across the board, with the exception of the build-to-suit market because there’s still tenants looking for space. Many of these deals are business-to-business deals, so they’ve already got the financing in the bank. We expect that the build-to-suit market will remain strong as we head into the rest of the year.

Yancey: There’s a small trend of changing vacancy rates in Denver right now, but it hasn’t majorly impacted the market yet. Construction activity has slowed in the Denver spec market. But as far looking into the crystal ball, market conditions have caused the overall state of Denver industrial to be somewhat cloudy and uncertain. Our team is staying busy with a few under-construction industrial projects in the Denver metro area, and we’re working on some pricing exercises with some others. 

This article was produced in collaboration between Catamount Constructors and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to [email protected].