Investors purchased $10.3 billion worth of commercial properties in metro Denver in 2015, a record for the area.
Multifamily acquisitions led the charge, with $4.6 billion in apartment complexes changing hands last year, according to data from CBRE Group Inc.
Sustained demand for apartments in the metro area and steadily increasing rents made apartments attractive for investors from both inside and outside Colorado looking for places to put their money, said Matt Barnett, first vice president in CBRE’s capital markets multi-family division.
The total sales volume for apartments represented a 31 percent increase over 2014, when $3.5 billion worth of apartments traded hands.
Hotel, office and retail sales also grew year-over-year, with hotels seeing the largest increase of the three categories at 35 percent from $500 million in 2014 to $676 million in 2015. Hotel sales were driven by several high-dollar transactions in downtown Denver, where high occupancy rates and revenue per available room attracted investors willing to pay top prices.
Industrial investments, on the other hand, were down slightly from 2014, which was a record year of investment sales for industrial properties with more than $1 billion of sales volume. More than $970 million in industrial properties traded in 2015.
The decrease is attributable to a decrease in high-dollar industrial buildings, many of which were bought up during 2014, said Mike Winn, vice chairman at CBRE Group Inc (NYSE: CBG). 2015 saw no industrial building sales at more than $50 million, while in 2014 there were nearly $300 million worth of such sales.
Of the $10.3 billion sold in 2015, $3.2 billion was sold in the fourth quarter, typically a busy quarter as funds hurry to use up money they’ve been told to spend in a given year, Winn said.
While institutional sales of industrial buildings slowed down, leasing activity for industrial buildings continued its quick pace, with average rental rates increasing by 17 percent over the previous year to $7.81 per square foot in the fourth quarter of 2015.
Rent increases in the industrial sector translated into new construction as developers worked to keep up with demand, according to research from Collier’s International Group Inc. More than 2.6 million in industrial space was under construction at the end of the quarter, up from 2.2 million square feet at the end of 2014.
The vacancy rate for industrial space stayed flat from a year ago at 4.1 percent.
The industrial sector experienced an unexpected negative absorption of 606,152 square feet in the fourth quarter, a surprising statistic because of the high level of activity in 2014 and 2015. Fourth-quarter was the first time metro Denver had negative absorption in 10 quarters, according to Colliers.
Absorption refers to the amount of space either leased or given back to the market in a given time period.
One big vacancy that occurred in the fourth quarter led to the negative absorption for industrial in the fourth quarter, said Tyson Price, research manager at Colliers (Nasdaq: CIGI). Kmart vacated its 1.3 million-square-foot warehouse at 18875 E. Bromley Lane in the DIA submarket.
Had it not been for that vacancy, the industrial submarket would have posted nearly 700,000 square feet of positive absorption, and absorption is expected to pick up even more as 2016 goes on, Price said.
Retail also had to combat a large amount of negative absorption that occurred in the second quarter of 2015 when Safeway closed eight stores in metro Denver. Positive fourth-quarter absorption of 351,199 square feet helped fill the gap with the retail sector taking a net 698,051 square feet in 2015, according to research from Newmark Grubb Knight Frank.
“The market is strong enough to deal with those closures,” said Justin Kliewer, managing director at NGKF, a division of BGC Partners, (Nasdaq: BGCP).
Denver is top-of-mind for many retailers as people flock here, increasing demand for retail space, he said. That demand coupled with new construction delivery should continue to drive up absorption rates into 2016.
Denver’s retail market spent 2015 gaining strength after a slower recovery from the recession than other segments of the market.
Vacancy rates increased slightly year-over-year in the fourth quarter from 6.1 percent to 6.2 percent, along with average rent rates, which increased by about 9 percent year over year to around $17 per square foot.
Aside from traditionally popular retail markets like downtown Denver and Cherry Creek, retail has been picking up in both the northern and southern suburbs, driven by population increases, Kliewer said.
Still, Cherry Creek commands the highest rents in the metro area, with a median rental rate of $50 per square foot, triple-net, for large strip centers in Cherry Creek, according to NGKF’s research.
Denver’s office market continued to fend off softness in the oil and gas industry in the fourth quarter, with 854,613 square feet of positive absorption in the quarter, according to Jones Lang Lasalle.
Consolidations, sales and layoffs in oil and gas companies have weighed on the minds of Denver office submarket professionals as oil prices have fallen. About 15 percent of the current vacant office space in Denver’s central business district is energy sublease space, according to JLL.
But the city’s growing technology and financial services industries have helped keep the city’s office market stable.
Office vacancies dropped from 13.8 percent at the end of 2014 to 13.1 percent at the end of 2015, while rents grew from $24.63 per square foot on average to $25.62 year-over-year.
Molly Armbrister covers real estate, retail and construction for the Denver Business Journal and writes for the “Real Deals” blog. Phone: 303-803-9232.