CREJ

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— Retail Properties Quarterly — February 2015

he new year is in full swing

and established retailers

are looking to execute on

expansion plans following a

strong holiday sales season.

New ideas are ready to blossom

into new stores. That means as a

retail broker, I am spending count-

less hours searching for the next

great opportunity, or pitching strong

projects that have

space available or

that are coming

out of the ground.

Though time and

time again, I hear

from my colleagues

and clients, “There

isn’t enough qual-

ity space avail-

able in the Denver

metro right now.”

However, there are

still strategies that

can lead to retail

success for those

retailers looking in

the right places.

Retailers large and small, estab-

lished or upstart, all want one thing

right now – quality space. When

looking at vacancy rates, you would

think that quality space exists in

the market, and that it’s ripe for the

taking. In reality, when focusing in

on the 7 percent vacancy rate in

Denver, you realize that most of that

vacancy is not quality Class A space.

Instead, vacancies are in Class B

or C space that retailers just don’t

want.

The current vacancy is really con-

ducive to demolition, or at least

remolding and repositioning into

a quality space that a retailer can

sink his teeth into and have a high

level of confidence in, which leads

to strong sales projections. Unfortu-

nately, that takes time and money,

neither of which retailers want to

waste. The most important factor

right now seems to be time, because

the quality space is not available.

While owners and developers are

trying to catch up to meet the cur-

rent demand, retailers are compet-

ing for quality space.

Demand for retail space is com-

ing from a number of segments, but

restaurant growth has accounted

for more than 40 percent of all

total unit growth over the past four

years, according to Garrick Brown,

economist with ChainLinks. This

is the largest market segment and

the largest demand driver for good

reason. Every fast-casual operator I

spoke with had dreams of becoming

the next Chipotle, and they all have

their own concept or spin on some

traditional offering. But what seems

to get overlooked is how tough it

can be to break through to consum-

ers when you’re surrounded by so

many established names and other

popular, emerging concepts. Denver

is one of the hottest markets in the

nation for emerging restaurant con-

cepts, and is often called a foodie

city, but that is not helping those

who are trying to make an entrance.

The old adage “location, loca-

tion, location” has never been more

important for standing out as an

operator; unfortunately, the quality

space to plant a flag doesn’t seem to

exist. So what is a retailer to do?

I am encouraging clients to con-

sider looking outside of the Denver

city limits, and I have presented

projects in secondary markets that

could be huge opportunities for

retailers. These opportunities for

expansion exist along the entire Col-

orado Front Range and even in the

Western Slope and mountain com-

munities, which often are consid-

ered secondary markets. The clear

and present advantage is the fre-

quent lack of competition and, even

more so at this time in the market

cycle, additional space availability.

I often use a pie analogy asking, “If

you only have the opportunity to get

a small slice of a big pie, wouldn’t

it be just as good, if not better, to

get a bigger slice of a smaller pie?

Or better yet, have the whole pie to

yourself?”

The other factor that often leads to

success in secondary markets is lower

costs, whether it is lower occupancy

cost, staffing cost or marketing cost.

There are some great success sto-

ries in smaller markets and some

concepts worth watching and dupli-

cating. For example, Spoons, a soup

kitchen of sorts, is one of my favor-

ites and one of my stops any time I

am in Fort Collins. Another is Post,

a Big Red F Restaurant Group con-

cept, based around a brewery and

chicken menu in Lafayette. There is

also ToGo’s, one of California’s larg-

est sandwich chains, with over 325

locations, which just opened its first

Colorado store in Colorado Springs.

These retailer successes translate

into developer and owner success

stories as well. Over the course of

the last 12 months, I have seen new

projects preleased, and, in some

cases, fully leased before delivery in

markets like Castle Rock, Loveland

and Lafayette – some had written

these off as locations not worth the

time and money. Rather than writing

these secondary markets off, I am

encouraging my clients to focus on

them as some of the best opportuni-

ties of 2015.

Denver will continue to offer great

opportunities, new projects, renova-

tions, creative reuses and adaptions,

but the secondary markets hold a lot

of consumer dollars for those willing

to go capture them. It will take some

outside-the-box real estate search-

ing and analysis, and some creative

deal structure, but for a bigger piece

of pie, it seems worth it to me.

Secondary markets provide space demand relief

Northern Colorado Update

Michael

DePalma

Vice president,

SullivanHayes

Brokerage, Boulder

Retail space is in demand for fast-casual restaurants.

Secondary markets like Lafayette may provide opportunities for retailers.