Denver Industrial Could Fare Better Than Other Sectors, Experts Say
Denver's industrial real estate may not be the hardest hit by the coronavirus pandemic and resulting economic slowdown.
“The industrial sector seems to be doing much better than others, and it’s because you and I are buying everything online,” Hyde Development principal Paul Hyde said this week.
Hyde said that there’s been a giant surge in e-commerce since this pandemic, to the point where it’s achieving “Christmas levels.” He said he has seen it from everyone on the supply chain, from third-party logistics providers to manufacturers and tenants.
According to CBRE’s Post-Coronavirus Industrial Real Estate U.S. MarketFlash Report, the long-term effects of the coronavirus pandemic could boost industrial real estate as e-commerce booms.
“As it has been for more than a decade, e-commerce will once again be the biggest catalyst for both demand and change in industrial real estate over the next cycle,” the report said.
The report predicted that by 2030, e-commerce purchases would be 39% of total retail sales. In comparison, 2019 had only 19% of purchases made via e-commerce.
According to analysis from ACI Worldwide, online transaction volumes in most retail sectors have seen a 74% rise in March compared to the same period in 2019. The company said it will release April data on May 11.
The report also noted two other major reasons why industrial real estate will likely do well into recovery and beyond. Companies may turn from supply chains that rely on China toward other parts of Asia, Mexico and the U.S. This diversification will drive demand on the East Coast and inland port locations, it said.
The third reason is inventory controls. The sudden shock of panic-buying and consumers stocking up on goods could have vendors keeping larger quantities of goods in stock for retailers. This larger stock will drive demand for warehouse space, the report said.
Hyde said that the adaptability of industrial real estate has helped some businesses overcome short-term supply chain disruptions and manufacture goods that are immediately needed, such as personal protective equipment and hand sanitizer. While we’re only in “the first inning,” this will have lasting effects on industrial real estate for years to come, he said.
That’s not to say industrial real estate hasn’t taken a hit, it just may not be hit as hard as office or retail.
“By no means are we naive enough to think we’re fully insulated from the pandemic and from traditional economic cycles,” said Derek Conn, executive vice president and partner at Etkin Johnson Real Estate Partners. “We do feel like our product type will, relatively speaking, be the strongest.”
Denver’s industrial real estate sector is diverse, as it has manufacturing, warehouses, distribution and lighter flex industrial product. That, coupled with the flexibility of the real estate itself, has contributed to a strong industrial real estate sector.
Many of these lighter industrial buildings can support a variety of users, including technology and healthcare companies that need laboratory or R&D space.
“[These] are a variety of companies creating things in their space that actually need a physical presence," Conn said. "Whereas with office space, it’s much easier to telecommute.”
Both Conn and Hyde also said that their industrial projects under construction have not experienced delays.
Back in January, Hyde Development and Mortenson closed on a site in Aurora. Soon after, work began on the site to develop 2.2M SF of industrial space. Hyde said there has been no change in the schedule.
“You want to be the first people delivering the building out of the crisis, and building into the recovery because there’s going to be a lot of pent-up demand,” he said of the timing of the development.
Conn said that Etkin Johnson has not experienced schedule issues on its projects either. Right now, it is developing a 146.3K SF industrial flex building at the Colorado Technology Center in Louisville and two 80K SF buildings on Chambers and E-470 in Parker.
Etkin Johnson said it decided to break ground in March on the CTC project because there is still a demand for this type of space and leasing could take longer than it usually does.
Earlier this year, Bisnow reported that a 594K SF industrial development had broken ground in Commerce City. It also reported that 2019 was a record year for industrial real estate with transaction volume hitting $102B.
Those steady fundamentals and Denver’s supply of industrial real estate assets could keep it performing better than its office or retail sectors.
“While we certainly don’t expect everything to be roses, we feel comfortable in our product in the medium and long-term,” Conn said.