CREJ – Office & Industrial Quarterly – December 2024
Despite facing challenges in rent growth and occupancy rates during 2024, the industrial real estate market shows promising signs of stabilizing, with expectations for a measured recovery in 2025 nationally and locally, in Northern Colorado.
According to CoStar, the U.S. industrial market has had nine consecutive quarters of vacancy rate increases leading to the current national average vacancy rate of 6.9%, and the net absorption over the last year has been at its lowest in over a decade (CoStar, November 2024). This can partially be attributed to lower home sales due to higher mortgage rates, lower demand for furniture, lean building supplies, and declining or flat retail inventories. Due to the previously mentioned factors, the national industrial rent growth has cooled to an average of 2.6% year over year. However, as the year has progressed, we have seen positive improvements in tenant demand, specifically for available space that is under 50,000 square feet.
In Larimer County, we have continued to see cooling net absorption, and contrastingly, we have also seen continued industrial development project completions. This combination of factors has pushed the industrial vacancy rate in Larimer County up over a full percentage point in the last twelve months to 6.4%, which is just below the national average (CoStar, November 2024). The annual market asking rent growth in Larimer County peaked at 7.4% in the middle of 2022 but has since decelerated to an average annual growth rate of 1.4%. The current average asking rent in Larimer County is $12.50 per square foot.
However, we have started to see industrial developers in the market pull back, and there is significantly less industrial product under construction today than there has been in the past few years. According to CoStar, approximately 32,000 square feet are under construction in Larimer County, which is down from the 200,745 square feet that was under construction a year ago. I believe it is likely that if we have less supply hit the market, as expected, and continue to see an increase in tenant demand, the vacancy rates in Larimer County’s industrial market will begin to stabilize or decline steadily. With vacancies declining and tightening the market, the opportunity for rent growth increases will likely prevail.
In Weld County this year, a brighter story has emerged. This is largely due to increased demand for industrial product in recent years that has created lower vacancy rates and greater opportunities for new development. The apparent recent growth of this industrial market is largely driven by the continued robustness of e-commerce and consumer spending, creating favorable market fundamentals. Quantifying this, the industrial market in Weld County is historically tight and has a current vacancy rate of 3.8%, which is well below the national average (CoStar, November 2024). While Weld County has seen the industrial inventory increase drastically over the last decade, vacancies are anticipated to stay low as the strengthened demand continues.
A large amount of the new supply in the Northern Colorado market can be seen along the I-25 corridor in Frederick and Mead, as well as in Greeley along Highway 34. NAI Affinity, along with Newmark, is representing Roche Constructors to lease new construction industrial/flex units within the Highpointe Business Park near the southeast corner of Highway 34 and Highway 257 in Greeley. After delivering an approximately 34,000 square foot building mid-2023, there is approximately 10,600 square feet remaining. Plans for the next approximately 24,000 square feet building are in place with an anticipated delivery in late 2025 to early 2026.
Rents in Weld County have also continued to appreciate over the last twelve months, albeit at a slower pace than the national average and Larimer County, at approximately 0.4% year-over-year with the average asking rent currently at $12.80 per square foot (CoStar, November 2024).
While Larimer County’s industrial market experienced a general slowdown in 2024, tenant demand picked up toward year’s end. The combination of rising tenant demand and constrained new construction could help stabilize vacancy rates and potentially drive rent growth in 2025. Meanwhile, if Weld County maintains its robust industrial demand and low vacancy rates into 2025, that market is expected to remain relatively strong.
“Northern Colorado Industrial Market is Stabilizing”, written by: Lauren Larsen, (Managing Broker, NAI Affinity), CREJ – Office & Industrial Quarterly – December 2024, pg. 19.