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— Retail Properties Quarterly — February 2016
W
ow, 2015 was yet another
strong year in the Den-
ver retail market as the
state continues to attract
retailers from all over the
nation. Our well-diversified econo-
my, increase in population, almost
record-low unemployment and
increases in salaries contribute to
the growth of Denver. It is the sixth
fastest-growing city in the nation
and the second-best city to start a
new business, according to Forbes.
The Denver unemployment rate
declined to 3.1 percent in October,
which is the lowest unemployment
rate we have seen since 2000. Job
growth increased 2.5 percent for
2015, and the average hourly earn-
ings of all employees grew to over
$25 an hour, according to the U.S.
Bureau of Labor and Statistics. In
May, sales for retailers and restau-
rants jumped 1.2 percent and auto
sales hit the highest level we have
seen in over a decade. This comes
as consumer confidence is up and
being fueled by the lowest crude oil
prices we have seen since 2003.
Through 2015, there was a little
over 2 million square feet of posi-
tive net absorption across the Front
Range. However, we did see net
absorption slow down in the second
quarter when Safeway closed nine
underperforming store locations due,
in part, to the number of grocery and
specialty grocery store competitors
in our market. This brought approxi-
mately 500,000 sf of retail space
back to the market, some of which
is located in prime trade areas and
has been leased in whole or in part
already.
Over the last four years, a total of
about 6 million sf of new retail space
was delivered. To put this in perspec-
tive, in 2007 over 5.7 million sf was
delivered. There is a little less than
1.2 million sf under construction and
through the rest of 2016 this should
tick up as developers push projects
through the pipeline.
The success of our market over
the last couple of years can be cred-
ited to this slowdown of new con-
struction projects as vacancy rates
continue to drop and market rents
climb. Class A retail space in Den-
ver is in high demand and virtually
nonexistent. The better-quality and
better-located Class B locations have
benefitted from the short supply;
however, many retailers are exercis-
ing patience and have opted to wait
until they can enter the market in a
Class A location. Class C continues
to struggle and will be a challenge to
fully lease. Roughly 75 percent of the
vacant space is made up of Class B
and C properties.
Through second-quarter 2015,
developers, with a few notable
exceptions, were primarily looking to
build smaller projects in urban-infill
areas. In most cases, these develop-
ments are mixed-use projects with
multistoried, multifamily apartments
and first-floor retail in the hot trade
areas such as the Lower Highlands,
Lower Downtown and River North.
As multifamily rents grow and urban
land prices reach what may be the
peak, we have seen a shift in the
third and fourth quarters by devel-
opers. Some of the largest develop-
ments under construction now are
in the suburban markets.
Submarkets
As 2015 came to a close, the total
market vacancy rate – including
shopping centers and freestanding
retail product – was
5.2 percent across
the Front Range.
The number drops
to 5 percent, from a
high of 8.5 percent
in 2009, if we only
look at the Denver/
Boulder metro area.
The strongest
submarkets con-
tinue to be Colo-
rado Boulevard/
Cherry Creek at 2.2
percent; Boulder at
2.2 percent; Denver
suburban south-
east at 2.8 percent; Denver south at
3.7 percent; and Denver central at
4.5 percent. An interesting note: The
downtown submarket started first-
quarter 2015 with a vacancy rate of
4.1 percent and ended the fourth
quarter at 5.5 percent due, in part, to
approximately 47,000 sf of new retail
space coming on line.
As we look at the average triple-net
asking rents on a sf basis for avail-
able space across the Denver/Boul-
der metro area, three submarkets
are showing double-digit decreases
in pricing from fourth-quarter 2014
numbers. Colorado Boulevard/Cherry
Creek is $26.69, down 16.7 percent;
downtown is $26.34, down 15.4
percent; and Denver southwest is
$13.53, down 15 percent. This is in
direct relation to the lack of available
Class A space in these trade areas.
However, most trophy centers are
showing double-digit rent increases
over the past year. The rest of the
submarkets are showing solid rent
growth, except for the last two listed
below, which is due to conditions
noted above. Following are the aver-
age triple-net asking rents on a sf
basis:
• Denver northeast is $15.90, up
12.6 percent;
• Boulder is $23.88, up 8.8 percent;
• Denver northwest is $13.12, up
7.6 percent;
• Denver central is $17.45, up 5.7
percent;
• Denver southeast $18.63, up 5.7
percent;
• Aurora is $13.37, up 5.4 percent;
• Denver west is $14.68, up 3 per-
cent; and
• Denver south is $18.13, up 0.6
percent.
Grocery Expansions
Grocery, restaurants and service
concepts that don’t compete with
e-commerce lead brick-and-mortar
retail expansion. The grocery seg-
ment is very active in Colorado.
While Safeway/Albertsons is figur-
ing out what its post-merger turn-
around looks like, King Soopers and
Whole Foods are dominating our
market. Whole Foods had a challeng-
ing year nationally in the press and
will continue to slug it out. Mean-
while, Sprouts, Vitamin Cottage and
Walmart have created loyal custom-
er bases and continue to expand and
develop new store locations.
A big question this year is if the
“Your Choice Colorado” coalition,
backed by King Soopers, Safeway
and Walmart, will get a citizen-led
2016 measure on the ballot to allow
supermarkets and some conve-
nience stores to sell full-strength
beer and wine. The coalition needs
close to 100,000 voter signatures to
put the decision in the voters’ hands.
The initiative is strongly opposed
by local liquor stores and craft brew-
ers, which have successfully kept
Colorado legislators from tackling
the issue since 2008. With the craft-
brewing boom, local breweries say
it is much easier to get their prod-
ucts on local liquor store shelves.
They fear if big chain supermarkets
and convenience stores are allowed
to sell full-strength beer and wine,
those stores will only stock the most
popular brands.
King Soopers had two notable
openings this year. It opened the
first downtown full-service grocery
store at 20th Street and Chestnut
Place (46,475 sf) in August. Because
of the size constraints in this tight
urban market, the store is located on
the ground floor of a new five-story
multifamily apartment development.
In Parker, King Soopers redeveloped
a formerly shuttered 55,000-sf loca-
tion into one of its new 123,000-sf
“superstores.”
Whole Foods has a flagship loca-
tion in the works at 17th and
Wewatta streets (57,000 sf), but this
does not look like it will be delivered
before 2017.
Vitamin Cottage was busy with
two notable openings – the redevel-
opment of the former Elitch Lanes
site on 38th Avenue and Tennyson
(21,594 sf) and the redevelopment of
the former Gunther Toody’s location
at 4500 E. Alameda Ave. (20,000 sf).
Sprouts was active with store
openings as well by backfilling a por-
tion of the former Safeway at South
Buckley Road and East Mexico Ave-
nue (32,340 sf) and opening a loca-
tion at First Avenue and Wadsworth
Boulevard (27,000 sf).
Trader Joe’s signed a new lease
for its sixth location at West Bowles
Avenue and South Wadsworth Boule-
vard (21,954 sf).
Other Retail
The Denver Pavilions continues
to attract new large-scale retail-
ers with the addition of Uniqlo,
a Japanese clothing store sched-
uled to open later this year. It will
occupy the former Barnes & Noble
space (27,500 sf), which closure was
announced in October. In 2011, the
Pavilions brought the first H&M to
Colorado and now is expanding the
H&M space to the third floor with an
additional 10,000 sf that will feature
the H&M exclusive home collection.
This will be the sixth location in the
nation for this concept and puts the
Denver retail market in rarified com-
pany with the other locations in Bos-
ton, Washington, D.C., New Orleans
and New York.
The Cherry Creek Shopping Center
also opened a game changer, which
is opposite the trend of decreasing
big-box square footages, with the
addition of the new 70,000-sf RH Gal-
lery, the rebranded Restoration Hard-
ware. The four-story building chang-
es the landscape of the traditional
windowless malls and lays a new
foundation that will be duplicated by
other malls and retailers.
Some other notable transactions
across the Front Range include:
• Appliance Factory Outlet (338,651
sf) at 321 W. 84th Ave.;
• Costco Business Center (118,000
sf) at Alameda Square Shopping
Center;
• Sportsman’s Warehouse (60,000
sf) at River Point;
• CarMax (52,568 sf) at 18220 Pon-
derosa Drive;
• Chuze Fitness (45,000 sf) at
Thornton Marketplace;
• Ralph Schomp MINI (46,548 sf) at
1001 PlumValley Lane;
• GameWorks (34,265 sf) at North-
field at Stapleton;
• Stein Mart (30,824 sf) at Arapahoe
Crossing;
• Party City (19,949 sf) at 600 Cen-
ter Drive;
• Buy Buy Baby (23,522 sf) at Arapa-
hoe Crossing;
• Planet Fitness (22,000 sf) at Lake-
side;
• Marshall’s (22,821 sf) at Univer-
sity Hills;
• PetSmart (17,460 sf) at River
Point;
• Punch Bowl Social (17,000 sf) at
Stapleton;
• Eddie Merlot’s (11,097 sf) at Val-
lagio;
• Ulta Beauty (10,560 sf) at 600 Cen-
ter Drive;
• Solesdi (9,243 sf) at 2800 Walnut
St.;
• Tattered Cover (8,005 sf) at Aspen
Grove;
• Orvis (7,337 sf) at Avenue 2
Shops; and
• Cheesecake Factory (7,000 sf) at
Southwest Plaza.
For 2016, all along the Front Range
we are seeing new development
take place, fromVillage at the Peaks
(394,485 sf) in Longmont to the
Promenade in Castle Rock, which
will bring in a combined total of
nearly 2.5 million sf once completed.
New construction may not be at a
record-setting pace, but it is certainly
on a firm foundation assuming
that we will continue an annual net
absorption of 2.2 million sf, our last
three-year average. We will continue
to see a high demand for Class A
as well as for the better-quality and
better-located Class B properties,
lower vacancy rates and increased
rents through the rest of the year.
s
David Fried
Senior vice
president,
Cushman &
Wakefield,
Greenwood Village
Market Update
Courtesy Cushman & Wakefield
