Colorado Real Estate Journal - November 19, 2014
The Denver-area retail market is so strong that owners would rather hold than sell, creating a shortage of properties to buy. That is one of the conclusions of a third-quarter Denver-area retail report by Marcus & Millichap. “As revenue streams rise and owners are becoming more reluctant to exchange at current cap rates, many are holding on to assets, limiting for sale inventory,” according to the report. The number of single-tenant, net-leased properties will be limited by the number of listings, the report notes. And multitenant retail sales are down 15 percent from a year earlier, “as supply of properties fell short of demand.” And those who do sell expect top dollar, “taking advantage of intense investor demand,” the report notes. Retail, of course, reflects the local economy. And the Denver metro market is firing on all cylinders, with 42,000 new jobs expected to be added this year, a 3.2 percent year-over-year increase, the report notes “A favorable business climate and an affordable cost of living are drawing many employers to the metro (area), growing total employment well above recession levels and resulting in new household formations,” according to the report. While other cities across the country are still struggling to match prerecession levels, in the Denver area, total employment is projected to be 7 percent higher than during the prerecession peak, according to the report. Retail vacancies, meanwhile, have dropped by 80 basis points to 6 percent, while net absorption this year should hit 1.5 million square feet. Despite the strong fundamentals, retail construction actually is expected to fall 17.6 percent this year from 2013, with 700,000 sf of retail space being added to the market, compared with 850,000 sf last year. Rents, meanwhile, are projected to rise 3.2 percent this year, or about double the inflation rate of about 1.7 percent. In 2013, rents were up 2.4 percent on a year-over-year basis. “By year-end, rents for marketed space will have risen 6 percent since bottoming out during the recession,” according to Marcus & Millichap. The report noted that Westminster and Brighton are incorporating grocery stores into large-scale, residential developments. Trader Joe’s and Whole Foods, the report noted, are typically leasing less than 50,000 sf, while King Soopers is looking for larger spaces. Austin-based Whole Foods Market, however, recently announced it will open a 56,000-sf, flagship store called Whole Food Market Station at 17th and Wewatta streets in Lower Downtown, near Union Station. It will be part of 17W, a 640- unit luxury apartment community being developed by the Holland Partner Group. “We believe the addition of Whole Foods Market to our development raises the bar on quality living downtown and is a game-changer for the city of Denver,” said Peter Petricca, senior development director, Holland Partner Group. “We are excited by Whole Foods’ commitment to build a flagship store, which mirrors our commitment to build a premier, high-rise living environment for individuals seeking a dynamic urban lifestyle,” he added. Investors have a strong appetite for neighborhood and strip shopping centers, the Marcus & Millichap report said. “Smaller strip centers near LoDo and the metro’s many transit stations will draw attention from buyers, as many traditional net-leased buyers look to less management-intensive multitenant assets to achieve desires yields,” according to the report.