CREJ – Office & Industrial Quarterly – September 2024
The industrial and office commercial real estate market in Northern Colorado has been stagnant so far this year. At the beginning of 2024, users were very optimistic. The activity level was high, and many companies were inquiring about CRE for growth and expansion. Ultimately, that optimism cooled and resulted in fewer deals and a long lag time for completion of transactions. CoStar reported that, nationally, industrial leasing is at the slowest pace since 2012.
Local Examples
Office leasing in Northern Colorado is following the trend in the Western US that began shortly after COVID. Many companies have switched to hybrid work environments and disposed of large campus residences in an effort to cut costs. One local example is Madwire, a technology company that offers business management and software. Madwire has occupied 125,000 square feet at its 3405 S. Timberline campus in Fort Collins since 2019. They recently announced a move back to a 25,000 square foot space in the HP Campus on East Harmony Road. Madwire announced that the Timberline location has been leased but no details were released.
The industrial market in Northern Colorado has cooled significantly. Both demand and new construction has slowed. Many developers, including McWhinney, built projects in Northern Colorado from 2021 to 2023. Over 500,000 square feet were developed annually. This was expected, as the demand and construction of 70,000 plus square foot buildings in projects of over 200,000 square feet were at all-time highs from 2021 to 2023. Most of the new construction from that period has been absorbed. The most recent large lease was the move by Heska, purchased by Mars Pet Care in 2023, to the Axis 25 project at 4550 Byrd Drive. They will occupy 160,000 square feet in the project that was developed by Hines.
Office Analytics*
The office vacancy rate in Larimer County is 6.8%, up 0.8% for the year. Little construction has taken place in the past year. Leasing activity was 444,000 square feet for the past 12 months. Asking rents are $25.17 per square foot which is slightly higher than last year. Sales volume was $55.5M over the past year at a price per square foot of $162, down $7 per square foot from the previous year.
The office vacancy rate in Weld County is 4.5%, down 0.9% for the year. Little construction has taken place in the past year. Leasing activity was 223,000 square feet for the past 12 months. Asking rents are $20.26 per square foot, slightly higher than last year. Sales volume was $16.3M over the past year at a price per square foot of $143, down $7 per square foot from the previous year.
Industrial Analytics*
The industrial vacancy rate in Larimer County is 5.8%, up 0.9% for the year. Little construction has taken place in the past year. Leasing activity was 865,000 square feet for the past 12 months. Asking rents are $12.50 per square foot, up $0.24 from last year. Sales volume was $116M over the past year at a price per square foot of $144, unchanged from the previous year.
The industrial vacancy rate in Weld County is 3.9%, up 0.7% for the year. Little construction has taken place in the past year. Leasing activity was 713,000 square feet for the past 12 months. Asking rents are $12.80 per square foot, up $0.10 from last year. Sales volume was $151M over the past year at a price per square foot of $128, down $4 from the previous year.
The Future of Office and Industrial in Northern Colorado
Companies involved in manufacturing and distribution have begun to try and reduce costs by consolidation and facility closings. Stanley Black and Decker announced plant closings in Fort Mill South Carolina and Mission Texas earlier in the year. Smaller companies are following suit because of inflation, rising interest rates, and a slowdown in single-family construction. Cost to maintain and operate facilities has also risen with one significant factor being the dramatic rise in real estate taxes for commercial properties in Larimer and Weld counties. The last assessment took effect in January 2024 (2023 taxes) and increased taxes between 20% to 40% for some properties. That translated to higher lease and ownership costs. It was difficult for owners to protest the increase because lease rates and cap rates were at an all-time high in mid-June 2022 when the assessment took place.
The reworking of distribution networks and a move to last mile distribution fed the construction growth and leasing of large warehouse distribution facilities in Northern Colorado. As demand for space grew, Northern Colorado and Colorado Springs benefited. 2534 in Johnstown plus Centerra and Brands West in Loveland have been the beneficiaries of this shift. That trend has cooled for the time being, and construction and leasing slowed significantly in 2024. CoStar reports that industrial construction is at a seven-year low due to decreased demand and financing difficulties.
Once companies meet their supply chain transformation goals, there will likely be another increase in construction and leasing in late 2025 to 2026. New industrial projects are being considered at Encore (north of 2534 in Johnstown), The Ridge (near Hwy 402 and I-25), and other locations throughout the Front Range.
Source: *CoStar, September 2024
“Northern Colo. Office, Industrial Markets Stagnate”, written by: Joe Palieri, CCIM (Senior Advisor, NAI Affinity), CREJ – Office & Industrial Quarterly – September 2024, pg. 23.