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— Retail Properties Quarterly — November 2015
I
n 2015 we have seen many of
the bullish predictions for the
Denver metro market real-
ized. Vacancy rates fell and are
on pace to decrease approxi-
mately 80 basis points on the year
to 5.2 percent. Rental rates increased
by 2.4 percent thus far and are pro-
jected to increase a total of 3 percent
on the year. Job growth is robust and
varied across several sectors.
Denver’s strong fundamentals
and continued growing economy
attracted significant interest from
investors across the country, with
sales of multitenant retail proper-
ties increasing by 22 percent over
the last 12 months. Many investors
now view Denver as a primary mar-
ket competing for their investment
dollars along with the U.S. coastal
markets, which have long attracted
investors due to their strong funda-
mentals.
The investment sales market is
red hot with multitenant-retail
investment properties average price
per square foot increasing 9 per-
cent to $255. Single-tenant retail
sales increased 15 percent, with a
7 percent increase in the price per
sf to $330. Grocery-anchored cen-
ters, Class A power centers and
net-leased, single-tenant proper-
ties leased to tenants with a strong
credit profile are the most sought
after product types. They currently
are trading at capitalization rates as
aggressive or, in some cases, more
aggressive than they were prior to
the downturn in 2008-2009.
One of the most high-profile
transactions in the last quarter was
Metlife Real Estate Investors’ pur-
chase of Clarion
Partners 80 percent
interest in the
Denver Pavilions
for $106.19 mil-
lion. Gart Proper-
ties retained its
position in the
property, indicating
the property (as a
whole) was valued
at just under $133
million, at a report-
ed 5.5 percent capi-
talization rate.
With many inves-
tors priced out of
these higher-quali-
ty, more aggressive
segments of the
market, we see an
increase in activ-
ity in transactions
of Class B and C
shopping centers
without an obvi-
ous “upside” angle.
These centers are
stabilized, have a
limited number of
national credit ten-
ants, and typically
were built 20 or
more years ago. In
general, they have
been trading at cap
rates between 7.75 percent and 8.75
percent, depending on their location
and tenant mix.
Since 2009 these centers made up
only a small percent of the invest-
ment sales market. However, as
many private and entrepreneurial
investors are unable to achieve
their desired returns in the equity
markets and the more aggressively
priced retail centers, these centers
have proven to be a good value that
provide strong cash-flow streams
when financed with the cheap
financing currently available.
Value-add shopping centers with
major problems to fix or centers
with high vacancy rates also are
highly sought after, but with vacan-
cy rates declining and the overall
market improving, the supply of
these centers continues to decrease,
resulting in a limited number of
transactions.
New retail developments remained
relatively limited, with only 640,000
sf delivered in the last 12 months,
much of which was single-tenant
retail buildings. This is changing,
however, as there are currently 3.2
million sf of retail developments in
the pipeline. The bulk of these new
developments are in the outlying
suburban markets, such as Alberta
Development’s Promenade at Castle
Rock, or the recently announced
Simon Property Group development
Denver Premium Outlets in Thorn-
ton.
The limited supply of retail space
Garrette
Matlock
Senior vice
president of
investments and
senior director,
Marcus &
Millichap, National
Retail Group,
Denver
Ryan Bowlby
Senior financial
analyst and broker,
The Matlock Group,
Denver
Denver Highlight
Single-tenant sales trends for metro Denver
