Through fourth quarter 2017, the Denver manufacturing market continued to exhibit positive market trends. While Denver's population influx has begun to slow from its extremely high levels, it still drives growth in manufacturing and provides 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 and growing, ranking second in employment concentration among the 50 largest metros, according to the Metro Denver Economic Development Corporation. Lockheed Martin Space Systems Co. is constructing a $350 million, 266,000-square-foot satellite factory southwest of Denver. 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 increased slightly at the end of 2017, but the rate remains incredibly low at 2.7 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. Consequently, employment growth in manufacturing was only 1.3 percent from January through December 2017.
Our market statistics indicate that vacancy in manufacturing space decreased slightly in the fourth quarter to 2.8 percent, from 3.0 percent in the third quarter. Previously, the vacancy rate held steady at 2.4 percent or 2.5 percent for three consecutive quarters. Of the existing 50.0 million square feet of manufacturing space in Denver, only 1.4 million square feet is vacant. Vacancy is expected to remain below 4 percent throughout 2018, but might experience a slight uptick.
Denver's manufacturing market ended the fourth quarter with 89,000 sf of negative net absorption. However, due to limited supply, absorption will likely turn positive in first quarter 2018. Asking rates for available manufacturing space declined in the third quarter, decreasing by $0.20 per square foot from third quarter 2017 to $7.94 per square foot NNN, down by 6.5 percent from the previous year's historic high. Limited availability in the market, indicates that rates will resume growing in 2018.
Development activity in Denver's manufacturing market is starting to accelerate. J.M. Smucker Company is building a $340 million factory in Longmont, that will add 380,000 sf to the market in early 2019. Ball Aerospace is developing its 145,000-square-foot expansion of its Westminster facility, which will be completed in 2019. Currently there are over 1.1 million square feet under construction, a high going back to 2010.
Dawn McCombs is senior vice president of Avison Young's Industrial Group. Reach her at dawn.mccombs@avisonyoung.com. Download Avison Young's 4Q17 Industrial Research Report for Denver here.
