RE Summit: Saturation on minds of industrial property developers

Back in 2003, Northern Colorado experienced a 50% vacancy rate for industrial properties. Now, it’s the hottest sector of the real estate market, and developers are wary about over saturation in the market but still building.

In fact, according to commercial Realtor Joe Palieri of NAI Affinity, almost a million square feet of industrial buildings are under construction or planned for Larimer and Weld counties.

Palieri moderated a panel discussion Tuesday at the 2021 Northern Colorado Real Estate Summit titled “Industrial Revolution.” Featured were developers from multiple companies who have their sights set on industrial expansion in the northern region.

The NoCo Real Estate Summit is a BizWest event that began today in a virtual format and will continue Wednesday and Thursday mornings. Information about the summit and registration can be found here.

“We’re looking at it and concerned about it [over saturation],” said Clyde Wood, vice president of commercial development for McWhinney, which has been the most aggressive in the region in constructing industrial buildings over multiple years. “McWhinney enjoyed being the only game in town. The Northern Colorado market, while steady, is fairly shallow,” Wood said. 

He said buildings constructed on speculation could skew the market. “We should all be cognizant of that.”

McWhinney will complete its sixth building this year in the industrial park in Centerra just south of the Northern Colorado Regional Airport, will complete a smaller industrial/flex space building east of Scheels near the 2534 development in Johnstown, and will begin work this year on a new industrial area, called the Precision Campus, west of the Motorplex but closer to Interstate 25 than its other industrial properties.

Ryan Good, vice president and partner in the commercial development firm Etkin Johnson, said his company’s first foray into Northern Colorado is with two industrial or flex buildings that will be on the higher end of the lease rate scale. He was less concerned about over saturation. “Absorption numbers show we could experience oversupply, but the market hasn’t been tested. … There has been no supply, so there’s no oversupply to be tested,” he said.

The Etkin Johnson strategy is to build quality, high-finish buildings that will attract tenants. Its two-building, 195,000-square-foot Axis 25 project is directly west across I-25 from the Ranch Event Center and the Embassy Suites. 

Megan Turner, vice president of development for Denver firm United Properties, said she agrees that there will be a “flight to quality,” and if developers produce Class A space, it’ll be filled.

“Eyes are looking north, where there’s a lack of quality product. We expect companies will want to move into that quality space,” she said. United Properties is working on its third Northern Colorado project called Trade @ 2534 — a 16-acre, three-building site that will deliver 280,000 square feet of industrial space, with the first building to be finished in the first quarter of 2022. 

Jay Dokter, CEO of the Forge Campus, formerly the Rocky Mountain Center for Innovation and Technology, where Hewlett Packard got its start in Loveland decades ago, wasn’t concerned about oversaturation, even though the Forge has about 60% of its space yet-to-be occupied. 

“We have time to fill it out,” he said. The Forge campus has four buildings that total 811,000 square feet on 177 acres. 

“We’re doing this to grow companies,” he said. With a base rental rate of $9 per foot and a fixed triple net, the property is desirable for young companies looking to get started. The ideal tenant, he said, is a supply-chain tenant that can produce materials that other tenants in the facility can use. 

Members of the panel have not seen any one type of tenant seeking space in Northern Colorado. E-commerce and warehousing have attracted some attention, but so has manufacturing, both light and heavy. Most tenants are seeking small to mid-size spaces, although McWhinney has seen some larger users seeking to rent or buy space.

Etkin Johnson is “chasing some elephants” right now for its under construction project off I-25. Good said the company would like to find a big tenant around which it can lease smaller spaces. United Properties, also, would like to see a larger tenant to take space in its new development to get the project off the ground.

© 2021 BizWest Media LLC

on Facebook on LinkedIn