November 2015 — Retail Properties Quarterly —
Page 21
and strong tenant demand
put upward pressure on rental
rates and downward pressure
on vacancy rates. After years
of flat or very low rental rate
growth, we are on track to see
3 percent growth by year’s end.
Downtown Denver, Cherry
Creek and the Colorado Boule-
vard corridor remain the most
sought-after submarkets.
A key question regarding the
future strength of the retail
market as we enter 2016 is
when the Fed will raise the fed-
eral funds rate. Predictions are
all over the map; however, the
markets are predicting a better-
than 50 percent chance the first
increase occurs prior to March.
This expectation of raising rates
in the near term is resulting in
a number of buyers aggressive-
ly pursuing sound investments
with a desire to lock-in histori-
cally low interest rates.
In addition to the question
of when interest rates will
rise, there also is a question of
howmuch a hike in the fed-
eral funds rate will affect the
10-year Treasury and 10-year
swap rates, which are the key
benchmarks for commercial
real estate loans. One or two
small bumps in the funds rate
may or may not have much of
an impact on the key bench-
marks (and the interest rates
that can be obtained on com-
mercial real estate financing).
However, any such increases
will exert upward pressure on
these rates. A sharp upward
movement of 60 to 75 basis
points or more in loan rates
would have a substantial
negative impact on retail real
estate values. Most likely we
will know the answers to these
questions within the next 12
months.
s
Multitenant sales trends for metro Denver
