Through fourth quarter 2018, the Denver manufacturing market continued to exhibit low vacancy rates, and rental rates increased very slightly. While Denver’s population influx is slowing from its extremely high levels, it still drives growth in manufacturing and provides a steady labor supply. Approximately 11,000 manufacturing jobs have been created in the Denver Metropolitan Statistical Area (MSA) since fourth quarter 2010. The private aerospace industry is well established in the region and growing, ranking first in employment concentration among the 50 largest metro area, according to the Metro Denver Economic Development Corporation.
Lockheed Martin Space Systems continues construction on its $350 million 266,000 square feet (sf) satellite factory southwest of Denver, which should deliver in 2020, and has procured a $7.2 billion satellite contract. It is also relocating a portion of its production for the Navy’s Fleet Ballistic Missile program to its headquarters in unincorporated Jefferson County, adding up to 550 new jobs.
With the passage of the Farm Bill and the legalization of industrial hemp and cannabidiol (CBD), the nearly 1,000 Colorado companies already involved in the cannabis industry are poised for explosive growth to serve the national market. The established CBD businesses will require several times more lab, manufacturing and warehouse space. For example, Boulder Botanical and Bioscience Labs in Golden currently occupies a 27,000-sf facility from which it manufactures, tests and ships its wide array of products. In 2019, the company projects revenue will increase ten-fold. This will also have a ripple effect on the industry sectors that support CBD business, such as engineering.
Denver’s unemployment rate increased 40 basis points in fourth quarter 2018, but the rate remains incredibly low at 3.7 percent (below the national average of 4.4 percent). Like construction, the low unemployment rate indicates that finding qualified skilled labor will continue to be an obstacle for Denver manufacturers. However, employment growth in manufacturing was strong, 3.9 percent from December 2017 through December 2018.
Our market statistics indicate that vacancy in manufacturing space decreased in the fourth quarter to 3.0 percent, from 3.7 percent in third quarter 2018. Of the existing 49.5 million square feet (msf) of manufacturing space in Denver, only 1.5 msf is vacant. Vacancy is expected to remain below 4 percent throughout 2019, but might experience a slight uptick. Denver’s manufacturing market ended the fourth quarter with 289,636 sf of positive net absorption. Due to limited supply, absorption will likely remain positive in 2019. Asking rates for available manufacturing space increased very slightly in the fourth quarter by $0.03 per square foot (psf) from third quarter 2018 to $8.42 psf NNN, still near the previous high set in second quarter 2018.
Limited availability in the market, indicates that rates will continue growing in 2019. Development activity in Denver’s manufacturing market is starting to accelerate. The J.M. Smucker Company is still building their 380,000 sf facility, and Ball Aerospace is on schedule with its 145,000 sf Tactical Solutions expansion. Both facilities are expected to be completed in March 2019. Currently, there are 625,000 sf under construction.
Dawn McCombs is principal at Avison Young. Reach her at dawn.mccombs@avisonyoung.com. Download Avison Young’s 4Q17 Industrial Research Report for Denver here.
