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Page 4 — Retail Properties Quarterly — May 2015
A s we near the halfway point
of 2015, the Denver metro
area continues to be one
of the top markets in the
country to invest in retail
properties. Overall vacancy rates
are approximately 5.8 to 6 percent,
and are anticipated to decrease
slowly over the year as tenant
demand will outpace supply. By
year-end we expect vacancy rates
in the Denver metro area to be in
the 5- to 5.3-percent range. The
lack of supply also is going to result
in continued upward pressure on
rental rates, with rents rising 3 to
3.2 percent over the course of 2015
(after increasing approximately 2.5
percent in 2014). Strong fundamen-
tals and historically low interest
rates, coupled with a lack of quality
investment properties currently on
the market, result in a strong envi-
ronment for sellers of retail invest-
ment properties.
Strong job growth in the metro
area is one of the biggest drivers
behind the declining retail vacancy
rates. Employment grew by 3.2 per-
cent in 2014, which is more than 50
percent higher than the national
average. It is anticipated that
employment will grow by about 3
percent, or 45,000 jobs, in 2015. The
continued strong job growth envi-
ronment, coupled with oil prices
remaining low ($56 per barrel at
the time this article was written),
should lead to strong consumer and
tenant demand. While there may be
some reduction in employment in
communities that have been heav-
ily reliant on the shale-oil boom,
as low oil prices lead to layoffs and
reduced hiring,
the overall impact
on the purchasing
power of consum-
ers in the Denver
metro area will be
a net positive.
While strong
job growth and
low oil prices
have resulted in
increased tenant
demand for retail
space, the supply
side of the equa-
tion has remained
muted. There are
a number of reasons for the lack of
new development, including stricter
lending requirements, the high
cost of construction and a focus by
many developers on redeveloping or
rehabilitating older infill assets.
Even though new developments
are limited, there are some notable
projects in the works. The largest
retail development under construc-
tion in the Front Range is Alberta
Development’s Promenade at Castle
Rock, which will include over 1
million square feet of retail and
320 apartment units. Demolition
work recently began on one of the
largest infill redevelopments cur-
rently in the pipeline, Continuum’s
mixed-use redevelopment of the
former University of Colorado hos-
pital campus at Ninth Avenue and
Colorado Boulevard. The mixed-use
development will include 250,000
sf of retail, 125,000 sf of office and
approximately 1,000 apartment
units located on 26 acres. The total
cost of the project is estimated
to be more than
$400 million, with
the first stages
coming on line
in 2017. Another
large development
along the Colorado
Boulevard corri-
dor recently was
announced by the
city of Glendale.
Glendale 180, a
300,000-sf enter-
tainment center
located off Colo-
rado Boulevard
at Virginia Avenue, is projected to
break ground in the fall. One of the
largest rehabilitation projects in the
works is General Growth Properties’
$75 million to $80 million renova-
tion of the Southwest Plaza Mall,
with the intent of bringing the mall
back to its once region-dominating
form. For a point of reference of the
scope of this rehabilitation, GGP
paid $113 million for the mall when
Matlock Group exclusively listed
and sold the property to GGP in
1998.
In addition to these larger proj-
ects, developers are targeting trendy
and up-and-coming neighbor-
hoods like the Highlands along
the 38th Street corridor west of
Interstate 25, River North Art Dis-
trict and Sloan’s Lake Park, where
they are building smaller retail and
mixed-use developments. A few of
the developments and redevelop-
ments include the redevelopment
of Elitch Lanes into a Natural Gro-
cers at West 38th Avenue and Ten-
nyson Street; the redevelopment
of the H.H. Trammen Building in
RiNo at 27th and Larimer streets
into The Market, which will offer
fresh produce, meats, cheeses and
baked goods; and the Sloan’s Lake
Park mixed-use development that
will include an Alamo Draft House
movie theater and 14,000 sf of
retail. Another mixed-use develop-
ment recently began demolition at
35th and Larimer streets in RiNo,
and is scheduled for completion in
early 2016. The development will
include 10,000 sf of retail and 62
apartments. The development by
Littleton Capital Partners is being
funded in part by Fundrise, a leader
in real estate crowdfunding, which
recently expanded into the Denver
market.
One thing we continually hear
from investors is that there is a lack
of investment opportunities in the
Denver metro area. Strong funda-
mentals and a seemingly never-
ending string of good press, includ-
ing landing at No. 4 on Urban Land
Institute’s 2015 Markets to Watch
report, has Denver near the top of
buyers’ investment lists across the
country.
Additionally, recently we have
seen an increase in interest from
international investors, although
they tend to target only larger,
cream-of-the-crop Class A proper-
ties. According to CoStar, there were
29 retail investment sales of over
$2.5 million during first-quarter
2015 totaling almost $233 mil-
lion in value. The largest of these
transactions was Quebec Square
Retail Outlook
Garrette
Matlock
Senior director,
Marcus & Millichap
National Retail
Group, Denver
Ryan Bowlby
Senior financial
analyst, The
Matlock Group,
Denver