M A R K E T B E AT

DENVER’S ECONOMY CONTINUES ITS SLOW PATH TO RECOVERYThe Denver metro economy experienced strengthening economic fundamentals during the third quarter 2020, as the unemployment rate decreased 340 basis-points (bps) to close out the quarter at 7.5%. Nonfarm employment started to creep back from the approximately 1.4 million low exhibited in April 2020, increasing to just below 1.5 million by the end of the third quarter 2020 as Denver begins to slowly recover from the economic impact of COVID-19.

Upon the arrival of COVID-19 in the U.S., the economy entered a recession in March 2020, recording the worst decline in post-war history in Q2 2020. Mounting evidence indicates that the recovery began in May or June with Q3 2020 data likely reflecting that. But, until there is a public health resolution to the pandemic, the recovery is likely to remain uncertain and gradual. Only then can households and businesses become more confident. Access the most recent research on CRE and the state of the economy here.

VACANCY: Staying Mostly Flat, But Concerns For the FutureOverall vacancy across the Denver metro area closed the third quarter 2020 at 6.2% across all industrial product types. This figure represented an increase of 10 basis points (bps) over the second quarter 2020 and a 30-bps increase over the third quarter 2019. This marked the fifth consecutive quarter of metro vacancy at or above 5.8% on an overall basis, a figure that the market had stayed below since 2013. The primary catalyst for rising vacancy continues to be new speculative product delivering mostly vacant; a trend that continued this quarter as 957,000 square feet (sf) of speculative product delivered 0.0% preleased. New product has tended to lease up quickly upon delivery during this cycle, but product has delivered at a rapid pace, averaging over 5.3 million square feet (msf) per year since 2016. With a robust pipeline of product still under construction, expect overall vacancy to remain mostly flat through the end of the year, though it could marginally rise.

PRICING: Rents Stay FlatOverall average asking rental rates closed the third quarter 2020 at $9.01 per square foot (psf) on a triple net (NNN) basis. This represented a marginal decrease of $0.02 from the second quarter 2020 and an increase of 3.6% from the $8.70 psf NNN recorded to close the third quarter 2019. Rental rates had steadily risen heading into 2020, mostly due to the influx of new product around the market, but the effects of the pandemic have muted rent growth through the first three quarters of 2020. As the future remains cloudy, expect rental rates to remain relatively flat through the remainder of the year.

6.2%Vacancy Rate

330.7 ksfNet Absorption, SF

$9.03Asking Rent, PSF

SPACE DEMAND / DELIVERIES OVERALL VACANCY & ASKING RENT

YoY Chg

Overall, Net Asking Rent

DENVER, COLORADOIndustrial Q3 2020

5.9 msfUnder Construction, SF

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2015 2016 2017 2018 2019 YTD 2020

Net Absorption, SF Construction Completions, SF

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50

2016 2017 2018 2019 2020

NNN Asking Rent, $/SF Overall Vacancy Rate

ECONOMIC INDICATORSQ3 2020

7.5%

12-Mo. Forecast

Denver Unemployment Rate

1.5MDenver Employment

8.8%U.S. Unemployment Rate

YoY Chg

M A R K E T B E AT

ABSORPTION VS. RENT

OVERALL VACANCY

LEASING ACTIVITY

DENVER, COLORADOIndustrial Q3 2020ACTIVITY: Leasing Activity Rebounds from Sluggish Second QuarterLeasing activity recorded a solid rebound following a sluggish second quarter as the third quarter 2020 recorded 1.9 msf of activity. This was a notable increase from the 1.4 msf leased during the second quarter 2020, although it fell short of the 2.4 msf leased during the third quarter 2019. The largest lease of the quarter was Subaru’s lease for 554,200 sf at Majestic Commercenter’s Building 16. The next largest deal was Outrider’s 152,700-sf lease at 76 Commerce Center’s Building 4. Rounding out the top three for the quarter was the Pro’s Closet’s 136,700-sf lease at 1900 Taylor Avenue. The Northeast submarket continues to represent the bulk of leasing activity as the more than 815,000 sf leased this quarter represented 43.0% of total metro leasing activity for the third quarter 2020.

ABSORPTION: Slow Absorption Following a Slow Start to 2020 for ActivityOverall absorption recorded 330,700 sf during the third quarter 2020. This figure represented a large drop from the 1.4 msf recorded during the second quarter 2020 which benefitted from several build-to-suit (BTS) completions and previously-leased massive e-commerce occupancies. Overall absorption was muted this quarter following a sluggish start to the year for leasing activity. The largest occupancy of the quarter was the aforementioned 152,700-sf Outrider lease at 76 Commerce Center. Also noteworthy was an undisclosed e-commerce tenant occupying 151,700 sf at North Washington Commerce Center. Rounding out the top three move-ins of the quarter was Fenix Outdoor occupying the 140,500-sf lease that they signed at the end of 2019. The Central submarket led the way for the metro, recording 190,700-sf of net absorption.

CONSTRUCTION: Pipeline Remains RobustNearly 957,000 sf of industrial product delivered to the metro area during the third quarter 2020, all of which was speculative product. The largest delivery of the quarter was the 186,200-sf Building 25 at Gateway Park. Also noteworthy was the 147,300-sf Building Two at Potomac Park at Dove Valley. Both projects delivered without any preleasing. More than 5.9 msf remained under construction at the close of the third quarter 2020, split between 1.6 msf of BTS product and 4.3 msf of speculative product. The largest BTS project still under construction is the 900,000-sf BTS for Shamrock Foods at Picadilly & 32nd Avenue. The largest speculative project remaining under construction is the 594,100-sf Building One at Stafford Logistics Center.

SALES: Investment Activity Slows SlightlyIndustrial investment sales volume was solid during the third quarter 2020, recording $304.7M. This figure represented an increase over the $258.4M recorded during the second quarter 2020 but was well below the $545.4M recorded during the third quarter 2019. The market has recorded $907.9M in industrial investment sales volume through three quarters of 2020, compared to $1.06B through the first three quarters of 2019. The largest sale of the quarter was the 411,500-sf 333 Centennial Parkway which changed hands between DPC Development and Berkeley Partners for $49.0M.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

2015 2016 2017 2018 2019 2020

Q1 Q2 Q3 Q4

0%

1%

2%

3%

4%

5%

6%

7%

2016 2017 2018 2019 2020

Five Year Historical Average = 5.0%

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2016 2017 2018 2019 2020

Net Absorption, MSF Overall Asking Rate, $PSF (4-Qtr Trailing Avg)

OUTLOOK• Overall vacancy may rise through the end of the year as leasing activity recovers and new product

continues to deliver, but vacancy should remain mostly flat over the next 12 months.• Denver’s Southeast submarket continues to record the highest overall vacancy in the metro at 8.7%,

largely driven by new construction delivering vacant. Expect vacancy to continue to rise there as more product delivers vacant, in turn impacting metro vacancy.

• Despite the uncertainty surrounding the pandemic, investment activity in industrial product remains strong through the first three quarters of 2020. Although volume may fall below prior years, expect sales volume in 2020 to surpass the billion-dollar mark for the third consecutive year.

M A R K E T B E AT

KEY LEASE TRANSACTIONS Q3 2020PROPERTY SUBMARKET TENANT SF TYPE

Majestic Commercenter – Bldg 16 Northeast Subaru 554,200 New

76 Commerce Center - Bldg 4 Northeast Outrider 152,700 New

1900 Taylor Avenue Northwest The Pro's Closet 136,700 New

600 Tech Court Northwest Eli Lilly 113,300 New

Clarion Gateway - Bldg 2 Northeast Undisclosed 94,400 New

*Renewals not included in leasing statistics

KEY SALE TRANSACTIONS Q3 2020PROPERTY SUBMARKET SELLER/BUYER SF PRICE/$ PSF

Ascent Commerce Center Northeast Crow Holdings/PGIM Inc 595,000 $93,500,000

HighField Business Park Northeast Confluent Development/Invesco 464,200 $64,500,000

333 Centennial Pkwy Northwest DPC Development/Berkeley Partners 411,500 $49,000,000

25 North Northeast Bow River Capital/EverWest Real Estate Investors 219,200 $43,400,000

3900 Uvalda St Northeast BlueLinx Corp/Brennan Investment Group 140,200 $11,000,000

KEY CONSTRUCTION COMPLETIONS Q3 2020PROPERTY SUBMARKET MAJOR TENANT SF OWNER/DEVELOPER

Gateway Park - Bldg 25 Northeast N/A 186,200 Clarion

Potomac Park at Dove Valley - Bldg 2 Southeast N/A 147,300 Opus

Mountain Gateway - Bldgs 1 & 2 Northwest N/A 142,200 Cale Enterprises

682 CTC Blvd - Bldg A Northwest N/A 133,600 Allen Company

Gateway Park - Bldg 24 Northeast N/A 128,600 Clarion

MARKET STATISTICS

FLEX = Office Service/High Tech MF = Manufacturing W/D = Warehouse/Distribution

DENVER, COLORADOIndustrial Q3 2020

SUBMARKET TOTAL BLDGS

INVENTORY (SF)

SUBLET VACANT

(SF)

DIRECTVACANT

(SF)

OVERALL VACANCYRATE (SF)

QUARTERLYOVERALL NETABSORPTION

(SF)

UNDERCNSTR

(SF)

OVERALL WEIGHTED AVG

NET RENT (W/D)

OVERALL WEIGHTED AVGNET RENT (MF)

OVERALL WEIGHTED AVG

NET RENT(FLEX)

Central 932 42,244,153 191,064 2,035,106 5.3% 190,657 1,730,605 $7.44 $15.06 $12.41

Northeast 1,465 105,945,513 1,100,201 6,137,534 6.8% 92,982 3,406,114 $6.45 $3.98 $12.28

Northwest 902 46,950,723 250,673 2,576,957 6.0% -90,267 146,323 $10.26 $11.03 $11.82

Southeast 480 22,255,936 140,384 1,788,158 8.7% 43,371 656,339 $9.59 $8.75 $12.06

Southwest 684 26,508,438 9,500 852,663 3.3% 93,922 0 $10.13 $9.87 $11.95

DENVER TOTALS 4,463 243,904,763 1,691,822 13,390,418 6.2% 330,665 5,939,381 $7.56 $9.03 $12.01 *Rental rates reflect weighted net asking $psf/year

M A R K E T B E AT

470

470

47025

85

285

6

25

76

70

70

270

36

76

70

470

DenverInternational

Airport

DENVER

NORTHWEST

LAKEWOODAURORA

BOULDER

LONGMONT

NORTHEAST

SOUTHEASTSOUTHWEST

INDUSTRIAL SUBMARKETS

cushmanwakefield.com

A CUSHMAN & WAKEFIELD RESEARCH PUBLICATIONCushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 51,000 employees in 400 offices and 70 countries. In 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services.

©2020 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

MICHAEL COPPOLAAssociate Market DirectorTel: +1 303 312 4212michael.coppola@cushwake.com

TIM MORRISSenior AnalystTel: +1 303 218 3256tim.morris@cushwake.com

DENVER, COLORADOIndustrial Q3 2020