Over the past decade, Denver has emerged as one of the most robust industrial markets in the United States. Demand for industrial space in the region has been supported by strong economic growth of employment, retail sales, and manufacturing. While the legalization of cannabis kicked off an entirely new demand cycle in 2012, increased high-cube distribution space has been the primary driver in recent years.
In 2019, developers of industrial product shattered records by delivering over 6 million square feet of new product; with approximately 6.8 million square feet (SF) currently under construction. These deliveries have helped flatten market rental rate increases which stand at approximately $9.97/SF. The current average market sales price of $138/SF is up year over year by approximately $5.00/SF representing appreciation of 3.6 percent over 2019 figures.
Based on the amount of new construction in the pipeline, we expect rates to remain relatively stable for the next two quarters with potential for enhanced concessions being available for larger users as developers deliver space, especially for distribution space which has seen less demand than manufacturing space.
Coronavirus shutdowns have had less of an impact on industrial property than any other major commercial property type. The essential nature of most industrial operations kept industrial tenants open for business, and rampant upticks in demand for 3PL and e-commerce services has fueled expansions like Amazon's 700,000-square-foot lease at Majestic Commercenter in Aurora.
Prologis recently reported nearly 49 million square feet in new leases nationally in the third quarter of 2020 alone with two thirds of that leasing being done in the food and beverage, healthcare, and consumer product industries. In the Denver metro area, Prologis owns approximately 10.2 million square feet of industrial space, with new projects on the horizon.