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Page 4 — Retail Properties Quarterly — February 2015
R etail is back on the scene in
Denver with plenty of activ-
ity. Last year’s activity was
marked by declining vacan-
cies, increasing rents and
several new national retailers enter-
ing the market. A strong local econ-
omy, population and employment
growth, increasing personal income
and a booming residential market
all contributed to
the retail sector’s
resilience. 2015 will
be another positive
year in the sector,
as the underlying
fundamentals in
the Denver metro
area remain strong.
Notable lease rate
growth is antici-
pated to occur in
the next 12 to 18
months due to
space scarcity in
A-trade areas such
as Cherry Creek, Park Meadows,
downtown and Boulder, along with
moderate construction activity.
Consumer activity was heightened
in the metro area, Colorado and the
U.S. during 2014, with retail sales
increasing by 8.1 percent in the U.S.
through October. Sales at the state
level through May (the latest data
available at the time of this article)
were up 5.5 percent, and in Denver
sales increased by 3.4 percent over
last year. Consumer sentiment is
also vastly improved, being pushed
by cheaper gasoline and rising home
prices in the area. As of December
2014, consumer sentiment in the
region rose 19.4 percent over 2013,
according the Mountain Region’s
consumer confidence index.
Twenty new national retailers
entered the market in 2014, with
more expected in 2015. New retail-
ers are drawn to Denver for several
reasons, including the above-average
personal income levels, steady popu-
lation growth and the region’s solid
residential market. Very few retailers
are leaving the Denver market and
business failures are still at a his-
toric low.
Residential development, includ-
ing a strong multifamily market,
contributes largely to retail health
because it amplifies consumption of
home furnishings, appliances and
accessories. For example, Conn’s
Home Plus, a home furnishings,
electronics and appliance store,
entered the market last year with
six new stores in Colorado’s Front
Range.
The region’s healthy retail mar-
ket benefits from a flourishing
restaurant scene. According to the
National Restaurant Association,
Colorado ranked fifth in the nation
for projected restaurant sales growth
in 2014. While national chain res-
taurants still seek opportunities in
the market, some of the best growth
has been in fast-casual concepts and
chef-driven restaurants. Quick-serve
restaurants posted a strong year in
2014 with several new QSR options
added to the market, such as Protein
Bar and Pizzeria Locale. We expect
this trend to continue in 2015, along
with the expansion of several proven
national sit-down chains, like Del
Frisco’s Grille.
Colorado is also the nation’s lead-
ing craft beer producer, with over
175 breweries and counting. While
the larger breweries typically are
in industrial spaces, many smaller
breweries seek space in key retail
areas.
A very competitive grocery mar-
ket will strengthen further in 2015.
Some short-term vacancies and
shifting are expected in the wake
of the recent merger of Safeway
and Cerberus, Albertsons’ parent
company, but new stores likely will
absorb the extra space. While 2014
saw the entry of Trader Joe’s to the
market, there were also several new
stores opened by Sprouts, Whole
Foods, King Soopers and Walmart
Neighborhood Market following
residential growth patterns. Look-
ing forward, the Union Station area
of downtown will add two large
grocery stores. A King Soopers is
currently under construction and
Whole Foods announced it will build
a 56,000-square-foot store in the
area as well.
Denver’s urban core is now a place
where people go to live, work, stay
and play. Further redevelopment of
obsolete space is expected in urban
and infill areas in the near term as
quality space becomes even scarcer
and in higher demand. The market
also will see mixed-use construc-
tion along transit lines following the
substantial expansion of the region’s
commuter and light-rail network.
For example, the city of Westminster
is in the final stages of approving
plans for the Westminster Center – a
105-acre transit-oriented, mixed-use
development on the site of the old
Westminster Mall, which includes
a significant share of land planned
for retail. Vertical construction may
begin as soon as the third quarter.
Despite encouraging demand
trends, local retailers will face new
issues and ongoing challenges in
2015, ranging from big-box store
consolidations to e-commerce.
E-commerce sales account for an
increasing share of total retail sales
in the U.S., but remain a minor con-
tributor overall. Total e-commerce
sales increased 16.2 percent from
third-quarter 2013 to third-quarter
2014, while total retail sales grew
only 4.2 percent. However, third-
quarter 2014 e-commerce sales
represented only 6.6 percent of total
retail sales in the quarter. Stores
are increasingly incorporating
omnichannel strategies to appeal
to multidimensional shoppers and
this trend is becoming increasingly
present in Denver. For example,
sporting goods store Sierra Trading
Post, which made its Denver debut
in 2014, offers customers an exten-
sive online catalogue and an in-store
pick-up option.
While big-box stores were expand-
ing rapidly in the 1990s and early
2000s, a notable change in consumer
habits led to smaller boxes becom-
ing more desirable. Centers in key
locations have repositioned or split
their boxes to accommodate new
users, thereby sustaining low vacan-
cy rates in the A-trade areas. How-
ever, in secondary trade areas, the
market is readjusting and nontradi-
tional users are finding these left-
over big-box spaces suitable for their
product. Fitness clubs, churches,
self-storage centers and entertain-
ment venues like trampoline parks
signed some of the largest leases
in terms of square footage in 2014.
Nontraditional use of these spaces
will likely increase and the market
will also see redevelopment of obso-
lete big boxes.
Year-end vacancy in the market
stood at 6.5 percent, which was
the lowest level since 2008, when
vacancy bottomed out at 6.4 per-
cent. Availability in the market
reached 10 percent in fourth-quarter
2014, its lowest level in six years.
These figures are reflective of an
overall tightening of the market
around high-quality space, a trend
especially evident in the Colorado
Boulevard/Midtown submarket,
which has the greatest proportion
of high-quality space and the mar-
ket’s lowest vacancy rate at less
than 3 percent. Asking lease rates
are reflective of these conditions,
averaging $24.35 per sf triple net in
fourth-quarter 2014. This submarket
contains premium retail space in the
Cherry Creek North area, which is at
market-setting rates. A few highly
anticipated mixed-use projects are
under construction there.
The overall market experienced
an average lease rate of $15.80 per
sf triple net in the final quarter of
2014, with a 45-cent increase year
over year and the highest rate the
market has seen since 2011. In light
of robust consumerism, as well as
continued broad-based economic
growth, ongoing construction and
overall positive absorption, Denver
retail likely will continue on a path
of restrained expansion through
2015.s
Retail Outlook
Jon Weisiger
Senior vice
president, CBRE,
Greenwood Village
Year-end vacancy
in the market stood
at 6.5 percent,
which was the
lowest level
since 2008, when
vacancy bottomed
out at 6.4 percent.