Real estate report: 2Q17 manufacturing update

By Dawn McCombs | Aug 03, 2017

The Denver manufacturing market is continuing to exhibit stronger fundamentals than other markets through the second quarter of 2017. Denver's population influx has not slowed, driving much of the growth in manufacturing and providing a steady labor supply. Nearly 8,000 manufacturing jobs have been created in the Denver Metropolitan Statistical Area (MSA) since 2010.

The aerospace industry is well established in the region, ranking second in employment concentration among the 50 largest metros, according to the Metro Denver Economic Development Corporation. Clean technology and beverage production are increasingly important drivers of local manufacturing, with employment growing 20 percent and 28 percent respectively over the past five years. The Denver MSA ranks fourth in clean technology employment and second in beverage production.

Denver's unemployment rate declined in the second quarter and remains incredibly low at 2.3 percent (the lowest of the large MSAs). Like construction, the historically-low unemployment rate indicates that finding qualified skilled labor will continue to be an obstacle for Denver manufacturers. Employment growth in manufacturing was only 1.2 percent in the first half of 2017.

Our market statistics indicate that vacancy in manufacturing space decreased slightly in the second quarter to 2.8 percent. Previously, the vacancy rate held steady at 3.1 percent or 3.2 percent for three consecutive quarters. Of the existing 52.4 million square feet (msf) of manufacturing space in Denver, only 1.5 msf is vacant. Vacancy is expected to remain below 4 percent through 2017, but might experience a slight uptick.

Denver's manufacturing market ended the second quarter with 176,000 sf of positive net absorption. However, due to historically high rental rates, absorption might turn negative in the second half of 2017. Asking rates for available manufacturing space increased in the first quarter, growing by $0.59 per square foot (psf) from second quarter 2017 to $8.41 psf NNN, up by 3.8 percent from the previous year.

Limited availability in the market, indicates that rates will continue to grow in 2017. Development activity in Denver's manufacturing market is starting to accelerate. J.M. Smucker Co. will soon start construction on a $340 million factory in Longmont, that would add 380,000 sf to the market. Ball Aerospace is broke ground on its 145,000 sf expansion of its Westminster facility, which will be completed in 2019. By the end of 2017, square footage under construction will increase substantially from its current figure of 274,202.

Dawn M. McCombs is senior vice president of Avison Young's Industrial Practice Group. Contact her at Download Avison Young's 2Q17 Industrial Research Report for Denver here.