CREJ - Office Properties Quarterly - March 2022
Last year was a strong year overall for commercial real estate in Northern Colorado (Larimer and Weld counties). Most sectors realized rent growth and value increases. Demand was especially good for industrial and multifamily product. Investors were particularly active, driving cap rates to historic lows for quality net leased investments of all kinds. Sellers saw their properties increase in value dramatically. With all that demand, the issue that kept many sellers on the sidelines was what to do with the proceeds. There was a short supply of 1031 exchange properties, and quality properties were under contract quickly with multiple offers.
In this article, I will highlight how the industrial market performed in Larimer and Weld counties in 2021.
The rate of absorption was pretty amazing given that over 400,000 sf of new construction was delivered again in 2021.
The industrial market in Larimer County was very strong. According to CoStar, lease rates grew by 5.7% and vacancy rates were down slightly to 4.1%, consistent with net absorption of 515,000 square feet. The rate of absorption was pretty amazing given that over 400,000 sf of new construction was delivered again in 2021. Over 900,000 sf is under construction currently in Larimer County with most of it classified as logistics. With the over 2 million-sf Amazon facility reported to be under development by Trammell Crow north of the Loveland-Fort Collins regional airport, construction numbers could be much greater.
Industrial development land is scarce in Fort Collins, so most of the new development in Larimer County is along the Interstate 25 corridor near Highway 34. However, the Mulberry Connection project, which consists of two buildings of 71,200 and 93,000 sf, respectively, is in north Fort Collins at the corner of the Northwest Frontage Road and Redmon Drive.
Some additional highlights of the new construction in Larimer County include two notable industrial projects that took place in the 2534 development in Johnstown in 2021. High Country Beverage added 91,000 sf to its facility at 4200 Ronald Reagan Blvd. United Properties broke ground on Trade@2534, a 280,323-sf, three-buildings project. Buildings 1 and 2 are nearing completion, and Pods recently signed a lease for 61,000 sf. Building 3 is slated to begin construction later this year.
Another Johnstown project is the Ironhorse Industrial development from McWhinney. The first building consists of 68,000 sf and was completed in November. McWhinney is also adding to its portfolio in Centerra on Viking Drive. Building 7 of the project consists of 123,000 sf and should be complete by the end of the first quarter. It has been leased by Bobo’s Oat Bars.
The Axis 25 project added two industrial flex buildings fronting I-25 on Byrd Drive in Loveland. Building 1 is 100,580 sf, and Building 2 is 95,114 sf and occupied by Beckman-Coulter Life Sciences.
Hines West LP has broken ground on its two-building project in Martin Lind’s Brands West development on Byrd Drive along the west side of I-25 in Loveland. The project consists of two Class A industrial buildings totaling 188,000 sf.
Larimer County industrial sales set another record of $211 million. Approximately 1.4 million sf sold at an average sales price of $150 per sf, as reported by CoStar.
The industrial market in Weld County remains strong as well. The vacancy rate of 4.9% is up slightly from 2020. Rent growth is up 5.9%, consistent with the rest of the Northern Colorado market. Strong demand and increasing construction costs are driving the rent increases.
Fortunately, supply is keeping up with demand for industrial space. There was 225,000 sf of new construction delivered last year. By contrast, over 734,000 sf was delivered in 2019 and 525,000 in 2020. The slowing trend in construction has helped to balance net absorption, which was 115,000 sf in 2021.
In 2022, it is reported that there is over 750,000 sf in the pipeline. However, recent reports show more than that in just three projects: 433,000 sf for the addition to the Smucker’s plant in Longmont; the Silver Point Development project named Elevation25 located at Weld County Road 9-1/2 and Highway 66 in Mead, which will consist of two buildings of over 200,000 sf; and the Broe Real Estate Group development called 25 Logistics Park near I-25 and County Road 34 in which Home Depot just committed to lease 386,000 sf.
Industrial sales volume was a whopping $316 million at an average price of $137 per sf. Two of the larger transactions included the purchase of 259 30th St. in Greeley, a 321,000-sf building occupied by All American Pet Proteins, by Bridge Investment Group for $44 million; and 1130 Diamond Valley Drive in Windsor, a 1-year-old, 100,000- sf facility, which was purchased by ADM for $17.25 million, 75% owner of the tenant PetDine.
Larimer and Weld counties continue to attract industrial development at historic levels. 2022 could be a record year for industrial construction in both counties if projections come to fruition.
"Industrial Growth Explodes in Northern Colorado", written by: Joe Palieri, CCIM, Senior Advisor, NAI Affinity