Last-mile delivery primes activity beyond Denver

As seen at Colorado Real Estate Journal

View PDF

According to the 2020 U.S. Census, Denver is the fastest-growing city in Colorado, followed closely by Colorado Springs. Pre-pandemic, both cities had been experiencing steady, yet notable growth, largely due to the region’s appealing outdoor and recreational lifestyle, employment opportunities and business climate, but 2021 has brought a surge of new demand across the entire state.

The news cycle has been dominated by the need for residential opportunities to meet the demands of a flourishing region, but the need for industrial projects has proven equally important to capture this growth as well as adapt to fastevolving consumer demands and the active e-commerce marketplace. In fact, the Society of Industrial and Office Realtors reported that “deals are being completed, not stalled,” and leasing activity in industrial has experienced a 30% increase since last year. What’s more, a second-quarter report shared by CBRE reports a 2.7% direct vacancy rate for distribution space.

Needless to say, industrial is showing no sign of slowing down in 2022, and several notable trends this year signal the start of a new era of heightened confidence and interest in industrial development.

All eyes are on the last mile. Retail forecasts show e-commerce will make up 22% of global retail sales by 2023, based on the growing number of e-commerce websites that rely heavily on delivery services. At a time when 41% of consumers rank same-day delivery as their most important attribute when shopping online, the last-mile delivery approach has become more relied upon than ever. Dedicated to ensuring a product purchased on an e-commerce platform makes it to the consumer in a timely manner, last-mile delivery facilities are strategically developed to be closer to where consumer demand exists.

As demonstrated in both 2020 and 2021, there has been a dramatic movement from many urban areas to suburban and developing communities. Now, more than ever, the last mile matters, and distribution becomes increasingly decentralized.

Amazon is a retail behemoth, and its hub-and-spoke model continues to be adopted by competitors looking to secure a location for the last leg of their delivery to service the local population quickly, efficiently and on time. In recent years, competitors in the retail market discovered unique ways to maintain pace with the likes of Amazon. Best Buy, for example, pivoted 250 of its store designs to become “hubs” to ship more online orders and handle more volume.

Colorado Springs makes its debut. From the industrial development perspective, developers across the state must take note of new trends and shifts in e-commerce. Colorado continues to forge ahead in industrial, and development in the state is expanding along the Interstate 25 corridor, becoming less focused on Denver. As the state’s capital and vibrant metropolitan area, Denver always will be a major player, but when looking at active developments, which regions are the most affordable and where residents will enjoy the best quality of life, we see this trending further and further along the corridor, from Fort Collins all the way to Pueblo.

Amid the pandemic, Colorado Springs has become a rising star. Not only has it been recognized by U.S. News & World Report, ranking the city as No. 6 out of its 150 “Best Places to Live in the U.S. in 2021-2022,” but also the city is becoming an attractive destination for both residents and companies alike. A notable catalyst for this increased interest in Colorado Springs is the master plan update to the Colorado Springs Airport, which will “provide the airport with a 20-year road map into the future.” The airport already is seeing an increase in commercial flights and deliveries, as well as visitors and tourists who are coming into the Springs directly and bypassing Denver altogether.

As the standard of living in Denver is becoming increasingly challenging based on incoming demand, Colorado Springs has been a benefactor of transient growth. From new home developments to national corporations establishing headquarters, this region is well-posi-tioned to become a viable alternative to Denver. Traditionally known as a hub for aerospace and defense, Colorado Springs offers a solid economic foundation, which has proved attractive for companies outside of those industries and future residents. Companies that previously believed they could easily distribute their products from Denver will soon realize that, with the complications with last-mile facilities and I-25 congestion, to best service the Colorado Springs market they must be in Colorado Springs.

Tailor your strategy to projected demand. Commercial real estate developers might have their eyes on the horizon to pursue large parcels of undeveloped land in Colorado, such as near Denver International Airport, but small, infill industrial projects have long had a history of outperforming the big-box projects, and this will hold true in 2022.

In an urban core like Denver or a growing city like Colorado Springs, there often are undeveloped parcels of land, vacant lots or empty buildings that are primed for redevelopment and opportunity. An example of this type of project is Central Park Business Center, a speculative infill industrial park that our team has developed, located at the intersection of Interstate 70 and Central Park Boulevard. Representing one of the few undeveloped infill sites in this market, the site has experienced interest from industrial users looking for convenient access for logistics and
distribution throughout the metro area. Class A buildings with highway frontage and easy access for customers are a rare find in Denver, but they cater to a single large user or multiple midsized tenants.

When mapping a strategy to meet the demand for industrial space in the Denver and Colorado Springs markets, developers must keep in mind the three core tenets of a successful industrial property: location, visibility and access.

Denver always has been and will continue to be “the darling” of Colorado. However, secondary markets like Colorado Springs and Fort Collins are picking up momentum and becoming attractive residential and business destinations. As the Denver metro area continues to evolve, in 2022 we’ll see companies become more keenly aware of the bevy of industrial and logistical opportunities that these alternative markets have to offer.

The significant rise in e-commerce and notable shifts in the competitive retail market on a national scale have local impacts. In Colorado, a growing population, coupled with heightened consumer demand for same-day delivery, will result in a critical need for last-mile delivery properties that effectively encompass the entire market. In 2022, developers may want to consider planting a flag in each corner of the Front Range to capture these demands and trends as this state continues to grow beyond Denver.