Through 3Q 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, 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 the third quarter rate remains incredibly low at 2.2 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. Consequently, employment growth in manufacturing was only 0.4 percent from January through September 2017.
Our market statistics indicate that vacancy in manufacturing space increased slightly in the third quarter to 3.0 percent. Previously, the vacancy rate held steady at 2.4 percent or 2.5 percent for three consecutive quarters. Of the existing 50.3 million square feet (msf) of manufacturing space in Denver, only 1.5 msf is vacant. Vacancy is expected to remain below 4 percent into 2018, but might experience a slight uptick. Denver's manufacturing market ended the third quarter with 310,000 sf of negative net absorption. However, due to limited supply, absorption will likely turn positive in Q4 of 2017 and Q1 2018.
Asking rates for available manufacturing space declined in the third quarter, decreasing by $0.24 per square foot (psf) from second quarter 2017 to $8.14 psf NNN, down by 3.3 percent from the previous year. 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 Co. began construction on a $340 million factory in Longmont that will add 380,000 square feet to the market in early 2019. Ball Aerospace broke ground on its 145,000-square-foot expansion of its Westminster facility, which will be completed in 2019. Currently there are 484,000 sf under construction, a high going back to 2010.
Download Avison Young's 3Q 2017 Denver Industrial Research Report here.