After years of rapid industrial development in metro Denver, developers have pulled back significantly in a shift that could bring relief to a market struggling with high vacancies.

New construction completions dropped 18.2% year-over-year, according to CBRE’s fourth-quarter 2024 industrial market report, while industrial vacancy — after peaking at 7.8% in Q2 — declined slightly to 7.6% by year-end.

Slowing speculative development has helped prevent further supply-side pressure, and the trend could set the stage for tighter conditions and rent growth down the line.

“We’ve maintained positive absorption for a long period of time here,” Todd Witty, a vice president at CBRE, told Bisnow. “So as long as that positive absorption continues and construction slows, you should see vacancy rates come down.”

A total of 5.2M SF of industrial space remains under construction in metro Denver. Developers are overwhelmingly shifting toward preleased or build-to-suit projects, which now make up 53% of all construction activity, Witty said. It’s a big change from previous cycles when speculative development played a larger role.

This shift is limiting the impact of new deliveries on overall vacancy, as projects are built with tenants already in place rather than adding excess space to the market.

The change in demand is also evident in the investment market, where sales rebounded strongly in Q4 2024 with $644M in transaction volume — an 87.4% quarter-over-quarter increase. Investors remain active, but Witty noted that they are focusing on those newer, Class-A assets in prime locations.

“Development today has to have a compelling story behind it, and that’s what you’re seeing in the projects where we’ve seen construction start,” Witty said. “Whereas in the past, people could be more bullish on every submarket, today they have to be more selective.”

The Interstate 76 corridor recorded a 7% year-over-year drop in direct vacancy. But at 20.8%, it is well above the metro average of 7.6%. The submarket has 15.6M SF of net rentable area.

Witty said there are shared leasing patterns between I-76 and the airport submarket.

“BroadRange Logistics’ 1.1M SF lease last year traditionally would have landed in the airport submarket,” Witty said. “But I-76 is almost a sister submarket. Most tenants expanding their footprint will tour both.”

In Q4, Airport East recorded an 11.9% direct vacancy rate across 45.9M SF, while Airport Central’s vacancy was just 4.3% across 56.1M SF.

A major factor in I-76’s vacancy outlook is a 700K SF lease by Amprius Technologies, which is converting a former Kmart and Sears distribution center in Brighton into a lithium-ion battery factory. While CBRE does not include that development in its report, Witty pointed to it as a sign of the submarket’s long-term viability.

“I do think you’ll see that market return to a healthy ratio,” Witty said.

Industrial rents held steady at $9.53 per SF in Q4 but grew 5.2% year-over-year. Some submarkets, such as the Southwest, saw double-digit quarterly rent hikes due to limited availability.

The West submarket recorded the lowest direct vacancy rate at 1.2% in Q4, with 11.3M SF of net rentable area. The Southwest and South Central submarkets weren’t far behind at 2% and 2.4% vacancy rates, respectively.

By contrast, Longmont had the second-highest vacancy rate after I-76 at 17.6%, but with a much smaller industrial footprint of 5.8M SF.

Despite slowing leasing activity, landlords haven’t lost pricing power yet. With limited new speculative development in the pipeline, rent growth could remain steady, much like how Denver’s multifamily market is expected to stabilize after its 3% dip.

Denver’s industrial sector is following a familiar cycle: rapid expansion, rising vacancies, and now, a slowdown in development.