Colorado-Real-Estate-Journal_421031

September 2024 — Office & Industrial Quarterly — Page 23 www.crej.com INDUSTRIAL — MARKET UPDATE YO U R V I S I O N . O U R I N I S I G H T. LEARN MORE Lovett 76 Logistics Center | Brighton, CO YOUR WESTERN SLOPE RESOURCE KEVIN BRAY Director of Development SID SQUIRRELL, CCIM, Broker Associate 1015 N. 7th Street Grand Junction, CO 81501 BRAYCOMMERCIAL.COM | 970.241.2909 BRIAN BRAY Managing Broker THERESA ENGLBRECHT Broker Associate MAX TAYLOR Commercial Property Manager CORY CARLSON Broker Associate KATIE DAVIS Broker Associate LORI LONG Broker Associate FOR COMMERCIAL REAL ESTATE LOCAL EXPERTISE GLOBAL CONNECTIONS T he industrial and office com- mercial real estate market in Northern Colorado has been stagnant so far this year. At the beginning of 2024, users were very optimistic. The activity level was high, and many compa- nies were inquiring about CRE for growth and expansion. Ultimately, that optimism cooled and resulted in fewer deals and a long lag time for completion of transactions. CoStar reported that nationally, industrial leasing is at the slowest pace since 2012. n Local examples. Office leasing in NoCo is following the trend in the Western U.S. that began shortly after COVID. Many companies have switched to hybrid work environ- ments and disposed of large cam- pus residences to cut costs. One local example is Madwire, a tech- nology company that offers busi- ness management and software. Madwire has occupied 125,000 square feet at its 3405 S. Timberline campus in Fort Collins since 2019. It recently announced a move back to a 25,000-sf space in the HP campus on East Harmony Road. Madwire announced the Timberline location has been leased, but no details were released. The industrial market in Northern Colorado has cooled significantly. Both demand and new construc- tion have slowed. Many developers, including McWhinney, built projects in Northern Colorado from 2021 to 2023. Over 500,000 sf were devel- oped annually. This was expected as the demand and construction of 70,000-plus-sf buildings in proj- ects of over 200,000 sf were at all-time highs from 2021 to 2023. Most of the new construction from that period has been absorbed. The most recent large lease was the move by Heska, purchased by Mars Pet Care in 2023, to the Axis 25 proj- ect at 4550 Byrd Drive. It will occupy 160,000 sf in the project, which was developed by Hines. n Office analytics. According to CoStar, the office vacancy rate in Larimer County is 6.8%, up 0.8% for the year. Little construction has taken place in the past year. Leasing activity was 444,000 sf for the past 12 months. Asking rents are $25.17 per sf, slightly higher than last year. Sales volume was $55.5 million over the past year at a price per sf of $162, down $7 from the previous year. The office vacancy rate in Weld County is 4.5%, down 0.9% for the year. Little construction has taken place in the past year. Leasing activ- ity was 223,000 sf for the past 12 months Asking rents are $20.26 per sf, slightly higher than last year. Sales volume was $16.3 million over the past year at a price per sf of $143, down $7 from the previous year. n Industrial analytics. According to CoStar, the industrial vacancy rate in Larimer County is 5.8%, up 0.9% for the year. Little construction has taken place in the past year. Leasing activity was 865,000 square feet for the past 12 months. Asking rents are $12.50 per sf, up 24 cents from last year. Sales volume was $116 million over the past year at a price per sf of $144, unchanged from the previous year. The industrial vacancy rate in Weld County is 3.9%, up 0.7% for the year. Little construction has taken place in the past year. Leasing activity was 713,000 sf for the past 12 months Asking rents are $12.80 per sf, up 10 cents. Sales volume was $151 million over the past year at a price per sf of $128, down $4 from the previous year. Companies involved in manufac- turing and distribution have begun to try to reduce costs by consolida- tion and facility closings. Stanley Black and Decker announced plant closings in Fort Mill, South Carolina, and Mission, Texas, earlier in the year. Smaller companies are follow- ing suit because of inflation, rising interest rates and a slowdown in single-family construction. Cost to maintain and operate facilities has also risen with one significant fac- tor being the dramatic rise in real estate taxes for commercial proper- ties in Larimer and Weld counties. The last assessment took effect in January 2024 (2023 taxes) and increased taxes between 20% and 40% for some properties. That trans- lated to higher lease and ownership costs. It was difficult for owners to protest the increase because lease rates and cap rates were at all-time highs in mid-June 2022, when the assessment took place. The reworking of distribution networks and a move to last-mile distribution fed the construction growth and leasing of large ware- house/distribution facilities in Northern Colorado. As demand for space grew, Northern Colorado and Colorado Springs benefited. Cen- terra and Brands West in Loveland and 2534 in Johnstown have been the beneficiaries of this shift. That trend has cooled for the time being, so construction and leasing slowed significantly in 2024. CoStar reports that industrial construction is at a seven-year low due to decreased demand and financing difficulties. Once companies meet their sup- ply chain transformation goals, there will likely be another increase in construction and leasing in late 2025-2026. New industrial projects are being considered at Encore north of 2534 in Johnstown, The Ridge near Colorado Highway 402 and Interstate 25, and other loca- tions throughout the Front Range. s joep@affinitycre.com Northern Colo. office, industrial markets stagnate Joe Palieri, CCIM Senior adviser, NAI Affinity