Leasing volume for industrial spaces in Denver has decreased by half over the last year as the market begins to normalize after a pandemic-led boom.

Overall, leasing activity declined by 55% year-over-year during the first quarter, according to Avison Young’s latest market report. While the total decline is notable on its face, the data shows that the impact was contained to submarkets like central Denver, Broomfield and Longmont.

The slowdown also comes amid a nationwide “normalization” of the industrial market, according to data from Newmark. The commercial real estate firm credited economic factors such as rising interest rates and inflation for the sizable slowdown of new industrial developments during Q1, which could cap the significant rise of vacancy rates in markets such as Southern California. However, Newmark still expects e-commerce operations to drive industrial demand, especially for electric vehicle and semiconductor manufacturing businesses.

“All of these headwinds create new opportunities for landlords, investors, and tenants,” Avison Young Denver Managing Director Marcy Moneypenny said in a statement, adding that Denver has been largely resilient given the numerous economic challenges it faces.

Like many other cities, Denver’s industrial market saw a significant increase in both leasing and deal volume earlier in the pandemic. Data from Avison Young shows that leasing activity nearly doubled from about 3M SF in Q1 2020 to nearly 6M SF midway through Q1 2021.

While both leasing activity and deal volume have declined since 2021, Denver’s triple-net rent rate has steadily increased. This speaks to the underlying demand for industrial space in Denver despite the overall market downturn.

As of Q1, Denver’s triple-net rent rate for Class-A properties increased to almost $12 per SF, representing a 19.8% increase year-over-year. Rents for Class-B properties also increased to $9.51 per SF, an increase of 16.8% over the last 12 months, according to Avison Young.

At the same time, Denver’s industrial vacancy rate climbed to 6.9% in Q1 compared to the 5.6% rate recorded at this time last year, likely related to the completion of new product.

Moneypenny said she is optimistic about the future of Denver’s industrial market given the amount of new space under development. There are more than 16.9M SF of industrial developments underway in Denver, by Avison Young’s calculation, and about 13% of that total has been delivered in the year to date.

CORRECTION, APRIL 19, 3 P.M. MT: A previous version of this story misstated Marcy Moneypenny's title at Avison Young Denver. This story has been updated.