The long-term prospects for the industrial real estate market can best be predicted by extrapolating from the graph of the real estate cycle from 1985 to the present. Though no one has a crystal ball, by understanding the drivers of previous real estate cycles, we can better determine how to respond to our current cycle.

There are lessons to be learned from our experiences in previous cycles. We are currently in the denial stage of the downturn and we’re hearing that “the pain will only be felt in the residential market.” Actually, industrial real estate lags behind residential by nine to 12 months, which puts the pain for the industrial market in the fourth quarter of 2008 and first quarter of 2009. However, thanks to a more diverse economy and greater balance among supply and demand, any decline in industrial activity should be short-lived. This down cycle will be shorter than those of the past. The recovery cycle will have us climbing out of the trough by 2010 and heading for good times again.


Randy Churchill Dowis
Principal, NAI Highland Commercial Group LLC, Colorado Springs

What’s in store for Colorado Springs’ industrial market through 2010 can be summarized in one word – stagnation!

Unfortunately, a large portion of Colorado Springs’ industrial market is driven by the housing industry, which is predicted to be soft into 2010. The building supply sector and construction trades drove a lot of our absorption; and now those companies are contracting and/or pulling out of the local market. The industrial market was showing signs of weakness year-end 2007, when absorption was a negative 343,681 square feet even though overall leasing activity was relatively strong at 856,421 sf.

Graham T. Benes
President/CEO, Ascendant Development Corp., Denver

So long as Colorado voters do not pass any damaging ballot initiatives in November, it appears that the industrial market is poised to continue on a slowing, mildly volatile, yet stable course through the end of the year with the opportunity to realize solid gains in 2009 carrying into and through 2010. Despite slowing absorption, the disciplined approach that the development community has maintained for the amount of new space delivered to the marketplace has kept vacancy rates from creeping up as much as other neighboring industrial markets such as Phoenix and Las Vegas. For instance, in the west side submarket of Phoenix there is more than 3 million square feet of new industrial space sitting vacant and overall market vacancy rates are swiftly rising past 10 percent. Denver, on the other hand, is still enjoying vacancy levels in the mid single digits with only incremental changes over the past 12 months.

Mike Wafer
Senior vice president, Grubb & Ellis Co., Denver

Tempered short-term pessimism coupled with long-term optimism sum up my outlook for Denver’s industrial market over the next 18 months. Despite only a 40-basis point slide in overall vacancy during first quarter, the market showed signs of early slowdown, which should reveal themselves further during the second and third quarters of 2008. I expect slight continued slowdown as general economic trends catch up with local companies. The general slowing of overall manufacturing and warehousing activity will eliminate expansions and relocations in some sectors, while the continued dearth of new home construction will cause many companies in the construction industry to finally release excess space that had been held in hopes of a quick turnaround.

Perhaps most telling in the short term is the large reduction in new orders for manufacturing recorded during the first two months of the year, which dropped the Front Range Purchasing Managers Index to 44.5, the first sub-50 reading in a half-dozen years.