Key facts
- Denver's industrial market vacancy rate has held steady at around 8.6%.
- Population growth in the Denver metro area has slowed considerably.
- High cost of living is identified as a key factor hindering population growth.
- Experts suggest population growth is crucial for Denver to be a top-tier industrial market.
- Phoenix and Salt Lake City are cited as examples of markets benefiting from strong population influx.
Denver's industrial real estate market is experiencing stability, but experts believe a slowdown in population growth poses a significant challenge to its long-term potential. At Bisnow's Denver Industrial Outlook event, industry leaders highlighted that without increased population influx, the market cannot reach its full capacity, impacting various sectors from office occupancy to retail and warehousing.
According to CBRE data, Denver's industrial vacancy rate has remained consistent at approximately 8.6% for the past three quarters. While net absorption saw an 83% decline quarter-over-quarter, it's noted that the last period of negative net absorption was in Q1 2010. This stability, however, is juxtaposed with a deceleration in population growth. The Denver-Aurora-Centennial metro area saw a 2.5% population increase between 2020 and 2024, a notable decrease from the 6.4% growth recorded from 2016 to 2020. Colorado's overall population growth rate is also at its lowest estimated point since 1989.
Brian Dietz, Vice President of Industrial at Evergreen, pointed to Denver's high cost of living, describing it as the most expensive non-coastal city with Manhattan-level restaurant prices, making it difficult for people, especially the service class, to relocate or remain in the area. TJ Smith, Principal at Colliers, shared instances of tenants leaving Denver due to high local labor costs and operating expenses exceeding base rent, with businesses seeking more affordable locations like Reno, Las Vegas, or Salt Lake City.
Despite these challenges, investment activity is present, with Baron Properties' Tommy Dirks noting that capital partners are offering around 6% cap rates for Denver properties, indicating continued appeal. However, the market is described as being at a 'tipping point.' Panelists contrasted Denver's situation with Phoenix and Salt Lake City, where robust population growth is fueling industrial market demand. Salt Lake City, in particular, benefits from strong natural population growth and inbound migration, attracting significant investor attention. Phoenix also shows positive year-over-year net absorption, supported by its population increase. Evergreen's experience highlights this disparity, with a project near Denver International Airport receiving fewer inquiries compared to a space in Tempe, Arizona.