Current trends in Denver's industrial market point to higher property tax assessments on the horizon. Vacancy rates are near all-time lows and there have been 15 consecutive quarters of positive absorption.
By the Numbers
Denver's direct industrial vacancy rate dropped to 4.6% at the end of 2013, according to CBRE Group Inc. The vacancy rate is down year-over-year and quarter-over-quarter. The central submarket had the lowest vacancy rate at 1%. Commerce City was close behind at 1.7%.
Tenants leased 144,924 square feet more than was vacated last year. This brings total absorption to 1.7 million square feet.
The biggest lease of the quarter was the 258,000 square feet pre-leased at a Prologis development off 56th and Havana Streets by Czarnowski Display Service. The biggest sale was the $46.4 million buy of the United Natural Foods Inc. distribution center at Gateway Park. It's believed to be the largest, single-tenant, industrial deal ever done in the Denver market.
Investment activity in the industrial market is hitting levels not seen since the start of the recession in 2007. One factor is the medicinal and recreational marijuana business. Well over 1.5 million square feet of real estate is attributed to this industry.
As dispensaries scramble to keep up with surging demand for legal marijuana, I-B zoned properties in the City and County of Denver are being absorbed at a feverish pace. Over the past few years, the focus has shifted from smaller industrial leases of 5,000-15,000 square feet to much larger leases over 50,000 square feet.
Properties considered overpriced for the typical industrial market are being sold for indoor grow facilities. For example, an 80,000 square foot building priced at $64 per square foot languished on the market for more than five years. The asking price was so high that it received very little interest. Then in December, it sold for $62 per square foot to a grower who plans to turn the entire space into an industrial mezzanine.
Industrial Values are Headed Up
As industrial properties continue to attract the interest of businesses and investors, property tax values will continue to climb. 2014 is not a revaluation year. However, Notices of Value will be sent by May 1 to property owners whose values have changed from 2013.
Last year, Denver adopted the Pilot Alternate Valuation Protest Procedure. Now all valuation, classification, and tax disputes are heard by the Denver Board of County Commissioners. You can protest up to two prior year values if you did not already protest those values during the years in question. For example, anytime during 2014 you can appeal your 2013 and 2012 values if no previous appeal was filed.