Real estate report: 3Q18 manufacturing update

By Dawn McCombs | Nov 11, 2018

Through third quarter 2018, the Denver manufacturing market continued to exhibit low vacancy rates, although rental rates declined 2.7 percent. While Denver's population influx is slowing from its extremely high levels, it still drives growth in manufacturing and provides a steady labor supply. Nearly 9,600 manufacturing jobs have been created in the Denver Metropolitan Statistical Area (MSA) since second quarter 2010.

The private aerospace industry is well established in the region and growing, ranking first in employment concentration among the 50 largest metros, according to the Metro Denver Economic Development Corporation. Lockheed Martin Space Systems continues construction on its $350 million 266,000 sf satellite factory southwest of Denver, which should deliver in 2020, and has procured a $7.2 billion satellite contract. United Launch Alliance is developing its next generation of rockets in Centennial in collaboration with other major technology companies, including L3 Technologies and Northrop Grumman. Pilatus Business Aircraft Ltd.'s new testing and aircraft completion facility in Broomfield delivered its first aircraft in late July.

Clean technology and beverage production are increasingly important drivers of local manufacturing, with employment growing 21 percent and 29 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 increased 40 basis points in third quarter 2018, but the rate remains incredibly low at 3.3 percent (the seventh lowest of the large MSAs). 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, 3.0 percent from August 2017 through August 2018.

Our market statistics indicate that vacancy in manufacturing space increased slightly in the third quarter to 3.7 percent, from 3.6 percent in second quarter 2018. Of the existing 49.5 million square feet (msf) of manufacturing space in Denver, only 1.8 msf is vacant. Vacancy is expected to remain below 4 percent into 2019, but might experience a slight uptick. Denver's manufacturing market ended the third quarter with 211,226 sf of negative net absorption. However, due to limited supply, absorption will likely turn positive in 2019.

Asking rates for available manufacturing space decreased in the third quarter by $0.26 per square foot (psf) from second quarter 2018 to $8.39 psf NNN, still near the previous high sent in 2016. Limited availability in the market, indicates that rates will resume growing in 2019. Development activity in Denver's manufacturing market is starting to accelerate. J.M. Smucker is still building their 380,000 sf facility, and Ball Aerospace is on schedule with its 145,000 sf Tactical Solutions expansion. Currently there are 625,000 sf under construction.

Dawn McCombs is senior vice president of Avison Young's Industrial Group. Reach her at Download Avison Young's 3Q2018 Industrial Research Report for Denver here.