This article first appeared in Colorado Real Estate Journal Office and Industrial Quarterly – December 2020.
By: Tyler Reed, SIOR, Managing Director-Industrial Services, Stream Realty Partners
The year 2020 has been one of unprecedented challenges and historic uncertainty. Covid-19, a contentious election year, and civil unrest has turned much of the country on its head. Despite the significant turbulence of the last nine months, Colorado will remain a place of opportunity for industrial real estate, and not just in the traditional sectors. A bright future for manufacturing is emerging, and the well-known adage, “trucks leave Denver empty,” will become a thing of the past.
The history of industrial demand in Metro Denver
Metro Denver has long been regarded as an end-user market, and most of the projects making headlines over the past few years support this. Developers, investors, and tenants have focused on warehouse and distribution projects in thriving industrial cores—such as I-70, Central Denver, and strategic locations that have shaped new submarkets—that offer a direct connection to the populations they serve. In other words: goods in, goods out. Manufacturers, on the other hand, have not invested the same interest.
For years, one of the most significant reasons for this has been Denver’s lack of robust infrastructure to support manufacturing, specifically, rail and intermodal facilities with the capacity, scale, and equipment to handle large amounts of raw goods coming in from ports in shipping containers. The main intermodal sites for the two main rail lines serving Denver, Union Pacific and BNSF, are located adjacent to Downtown. Not only are these facilities outdated, but the sites are landlocked and cannot be expanded to handle a modern number of containers. In June 2019, Union Pacific reported that it had to close its main intermodal site for three days due to rail line congestion and the inability to unload inbound trains due to capacity constraints. This unpredictability in the supply chain is a major deterrent to manufacturing companies that rely on efficient delivery of goods via rail to transform raw goods into finished products.
The assumption has always been that Denver is not a rail market because there is no demand. It’s the opposite; rail demand is suppressed because there is no adequate rail infrastructure or capacity to handle modern manufacturing requirements.
Signs of change
While there is virtually no opportunity to develop a new manufacturing facility anywhere close to existing intermodal facilities, several new rail parks are being discussed, constructed, or operated from Colorado Springs to Windsor. These parks will be far enough outside of population centers, allowing for entire trains to be removed from the main rail lines and the cars to be unloaded, separated and restacked.
New intermodal facilities with development sites adjacent to the rail spurs off the mainline will have an immediate and direct impact on bringing more manufacturing to the Front Range. In addition, these greenfield sites will enable companies to construct purpose-built facilities in remarkably close proximity to the new rail parks so that further supply chain efficiencies can be achieved.
Not only is Metro Denver seeing a large investment in rail infrastructure, but significant upgrades are also being made by electricity and gas utility providers to expand their grids to accommodate future industry growth. Simultaneously, water and sewer networks are being built out to greenfield sites to the east and north of the Front Range, and major fiber-optic service providers have made significant efforts to expand their service networks to support the high-tech nature of most manufacturing processes. New development sites near intermodal facilities and major highways, connected to ample fiber optics, and serviced by necessary utilities, provides manufacturing firms with the desirable infrastructure for their site selections.
Labor: The final piece of the puzzle
For the past ten years, Colorado’s steady population growth has been a dominant storyline. In 2020, the state saw a 1.6% population increase over the previous year, and this number is expected to grow to 6.31% by 2025. Of this growth, Colorado and Metro Denver continue to attract millennials and an increasingly educated labor force due to quality of life and relatively low living costs. The historical presence of aerospace and technology and the state’s high-caliber higher education institutions are also responsible for attracting and producing the highly-skilled workforce desired by manufacturers.
Colorado has long been a desirable destination for companies to locate due to its well-known lifestyle and ability to attract young, skilled talent, but the infrastructure has not been sufficient to make Metro Denver a viable manufacturing base. The arrival of new intermodal facilities, utilities, and high-speed fiber optics will provide the necessary fundamentals to attract these companies to relocate and construct new facilities.
Thanks to the vision and actions of a few, Metro Denver’s industrial market is positioned to see major growth in manufacturing in the coming years, and perhaps we’ll soon be hearing a new adage: “trucks only leave Denver full.”
By: Tyler Reed, SIOR, Managing Director-Industrial Services, Stream Realty Partners
This article first appeared in Colorado Real Estate Journal Office and Industrial Quarterly – December 2020.