On a recent family ski trip to Colorado to meet up with my dear buddy Nicky boy, I was also able to take a deeper dive into the Denver metro area’s industrial real estate market scene. While I typically focus on East Coast/I-95 markets, I wanted to give a fresh look at how Denver’s industrial market is positioned in context of other Interior West markets, its connection to California and Pac NW port markets and get a sense of how these markets compare to East Coast markets. 

Denver Metro’s Industrial Geography

One of the first things that become clear when taking a look at the geography of the West is just how vast of a region it is. The states are large, the distances between cities are greater and despite being such an expansive area, there are only a few main highway transport corridors running from California and Pac NW ports through the Interior West leading to population centers in the Plains, Midwest, Texas and East Coast. Centrally located, sizable yet relatively ‘remote’, Denver is the largest city in a 500 mile radius.

Denver is positioned as the anchor of the Front Range Urban Corridor, a region straddling north-south I-25 encompassing metro Denver as well as Colorado Springs, Boulder, Fort Collins and Cheyenne, Wyoming’s state capital. The Denver-Aurora-Lakewood MSA’s population has grown nearly 20% since 2010 and is now home to 3 million people, the second largest metro in the Interior West. Correspondingly, Denver’s industrial property market is the second largest in the Interior West behind Phoenix.

The bulk of Denver’s industrial zoned land uses are along the I-70 (E-W) and I-25 (N-S) corridors. Approximately 95% of Denver’s industrial space is situated in the Northcentral, Northeast, South Platte Corridor and Evans Corridor Submarkets.

According to the excellent 2017 Blueprint Denver Industrial Land Study, specifically the logistics sector is a significant part of Denver’s industrial economy with nearly $30 B in annual sales.  Denver’s industrial market is also comprised of a significant ecosystem of small urban manufacturers with 81% of these businesses having less than 20 employees. While, Denver’s overall industrial employment has shrunk over the years, economic value of activity produced in this sector of the economy has grown significantly due to strength in the logistics market as well as manufacturers integrating automation into their operations.

Transport & Logistics Infrastructure

As an inland industrial and logistics market, Denver metro is accessible via air, highway and rail. 

• Denver International Airport (DEN) is the 3rd busiest airport in the US and a top-10 busiest airport in the world with nearly 70 million passengers processing through the hub. If you are flying into Denver to access the Rockies to the city’s west, you’ll notice that DEN sits 25 miles northeast of the city. It is an enormous airport and covers an expansive land area - 52 square miles/33,500 acres - making it the largest land area airport in the country. DEN’s size is representative of the vastness that characterizes the Western US. With respect to air cargo, DEN’s size enables it to move and process large amounts of cargo which exceeds 235,600 metric tons per year. UPS, FedEX, DHL, United Airlines cargo and World Port cargo all have a presence at the airport. DEN’s air cargo operations rank 22nd in the US and ranked 2nd in the interior west.

• I-70, I-25 intersect within Denver city limits and the Western segment of I-76 runs to the northeast just north in Adams County. These corridors are where most of the market’s industrial zones are located. I-70 in and of itself is a key interstate highway running from Baltimore through Pittsburgh, Columbus, Indianapolis, St. Louis, Kansas City and Denver before terminating 2,100 miles later in Western Utah where it meets I-15. Putting the significance of I-70 into another perspective, it is one of only three interstates that traverse the Rocky Mountains from California (via I-15) and Pac NW ports. Famously, the Colorado Rocky Mountain segment passes through the Continental Divide via the Eisenhower-Johnson Tunnel, the highest point on the Interstate Highway System at an average elevation of 11,112 feet above sea level. Summit and Eagle County portions of I-70 provide access to A-Basin, Breckenridge, Vail, Beaver Creek, Keystone, Copper and Winter Park ski resorts. I-25 runs north-south the length of the Front Range from Cheyenne, WY through Colorado Springs, Santa Fe and Albuquerque to Las Cruces, NM just north of El Paso, TX and the US-Mexican border.

• Freight Rail Service to the centrally located interior west Denver market is a highly connected component of the region’s transport infrastructure. Class I railroads Union Pacific and BNSF along with Great Western and Denver Rock Island Railroad operate in the metro area and tie into the larger state freight rail network, which handles ¼ of all freight handled in Colorado according to the CO Office of Economic Development and International Trade. Freight rail continues to grow throughout Colorado with natural resources and agriculture being significant sectors of the economy, materials and goods traveling by freight rail include raw materials coal, ore, and lumber, grains, produce, livestock feed, industrial chemicals, fuels and advanced manufactured products.

Industrial Real Estate Market Overview

Denver is the 2nd largest industrial real estate market in the Interior West containing ±262 MSF of inventory behind only Phoenix. It’s also in the top 5 inventory markets in all of the West including California and Pac NW. The sub-$10 PSF average asking rent market currently has ±8 MSF under construction and it’s YOY % rent growth / SF % growth / vacancy rate stat line reads: -4.2% / 3.9% / 6.9% - industrial lease rates have slipped over the last 12 months after multiple years of robust leasing activity albeit in a competitive market with substantial speculative deliveries.

Already a massive market, projects delivered in Q1 and under construction represent a relatively healthy growth rate of ±3.9%. The metro’s interior geography and land stock to add healthy amount of speculative supply to the market in any given year help keep a lid on lease rates. The occupier market is diverse e-commerce, retailers, grocery, logistics, advanced manufacturing- all of these sectors have driven demand over the last 24-36 months with strong absorption coming out of the pandemic.

A few stats on where Denver is positioned compared to other markets in CA, Pac NW and Interior West:

• 4th largest industrial market by inventory in the West with 262 MSF

• 2nd largest industrial market in the Interior West outside of CA

• Ranks 17 out of 21 in Avg Rents +-$10 PSF market

• Appox 10 MSF under construction ranks 4th in the West

• Ranks near the bottom for YOY rent growth - lower rates than Q1-2022

• Ranks 9 out 21 - healthy 3.9% industrial floor area growth 

Denver’s central location in the Interior West receives truck traffic generated by Coastal California and Pac NW ports that reach the Mile High City by:

• I-70 via I-15 originating out of Southern CA Port of LA/Long Beach

• I-80 to I-25 from the Bay Area

• I-84 to I-25 from Seattle

As West Coast port labor disputes, global trade, shipping markets and geopolitics impact container and cargo volumes coming into the Port of LA/Long Beach and other seaports along the CA coast and Pac NW, market participants shall be keeping an eye on what this may have on Interior West industrial markets such as Denver, Phoenix, Las Vegas and Salt Lake City.

Thanks for reading.