Industrial sector thrives amid the COVID storm
What's next for real estate: Industrial
Brick-and-mortar retailers were among the hardest hit when businesses were forced to close their doors at the height of the COVID-19 pandemic. But those store closures added fuel to the already sizzling world of online commerce.
All that inventory needs warehouses and distribution centers to help get products people are ordering on their computers to their doorsteps.
Is it any wonder, then, that construction and leasing of industrial properties in the Boulder Valley and Northern Colorado has remained strong throughout the coronavirus crisis.
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“You don’t have to be a rocket scientist” to figure it out, said Julius Tabert, who as vice president at CBRE Inc. in Fort Collins specializes in the sale of investment real estate. “If you stay at home and push a button, somebody has to deliver it to you. E-commerce just had its highest quarter — even higher than Christmastime. It seems to be the new thing.”
Industrial properties of all types — warehouses, heavy and light manufacturing buildings, research and development centers and more —have been having a red-hot summer in the region.
“Industrial is very, very strong,” said Stephen Tebo, founder and owner of Boulder-based Tebo Properties. “We have projects in the pipeline that are going to be finished out.”
Noting that the Denver metro area had its busiest year in industrial and warehouse sales in 2019, Ryan Schaefer, chief executive of NAI Affinity in Fort Collins, told BizWest’s Northern Colorado Real Estate Summit in June that he expected the sector to grow even more in the coming months since the shift in demand to e-commerce services and the proximity of major highways will make the northern Front Range particularly attractive for companies that need large storage, fulfillment and transport hubs.
“We all had a very strong 2019, with transaction volumes at record highs, and we had a very good first quarter this year due to trailing transactions,” Tabert said.
Those first quarters of 2020 capped a string of 40 consecutive quarters of positive leasing activity for warehouse and industrial space in the metro area.
“And then we got hit by COVID and thought the world had come to an end,” Tabert said.
“My colleagues negotiated endless leases — office, retail — to get those guys through,” he said. “But while those other sectors were requesting rent reductions, postponements, abatements, we did not experience that in the industrial market. We negotiated numerous lease extensions in the same period.
“We have a pretty good grip on 1 million square feet of industrial space. After the first 60 days of the shutdown, we were at 90 percent of where we were before.”
The demand for space also is getting a shot in the arm from the need for drugs to address the pandemic, said John Tayer, president of the Boulder Chamber.
“Biotech is a perfect example,” Tayer said. “Pharmaceutical products will be needed to either prevent people from getting COVID or treat it. There’ll be demand for innovative products, and Boulder is a center of innovation. There is market demand for products and technology that are addressing these consumer and business needs. That’s why warehouse, laboratory space and manufacturing space for the biotechnology sector continue to be strong.
“Our companies are doing impressive work to not only address the new demand that COVID has created for their products but to pivot their businesses to respond to that demand — and at the same time to operate their businesses in a way that is responsible and protecting of their workforce,” Tayer said. “That’s a juggling act that’s worthy of tribute.”
Providing more facilities for the natural-products and aerospace industries also are showing broad strength, Tayer said.
“For me, it’s an indication of the breadth and diversity of our economy. We’ve talked about that as an asset for our community” — an asset that also helped the Boulder Valley and Northern Colorado weather the Great Recession a decade ago — “and now in this precarious economic environment, it’s an important element of our economic vitality.”
Tabert said a major trend now is industrial investment.
“That’s very hot right now,” he said. “The larger funds are shying away from traditional investment in retail and seeing industrial as the safer opportunity. We’re negotiating offers of $30 million to $50 million just on the investment side.
“There’s a lack of product,” Tabert said. “The owners (of industrial spaces) are saying, ‘I have this. It works for me. I know my tenants, I feel good about it. Why should I sell it?’ It creates quite some pressure.”
Will the good times continue to roll for the industrial sector?
“I believe this is the new normal, just because people get used to the e-commerce availability,” Tabert said. “It’s good to be in it. We hope it will continue.”
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