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— Retail Properties Quarterly — May 2016
A
long with the new apart-
ment projects sprouting up
across the city, new retail
space seems to be popping
up on every corner through-
out the Denver market with no signs
of slowing down. It is currently esti-
mated that over the next 18 to 24
months, the central Denver market
will add an additional 2 million to
3 million square feet of retail space
to an existing 34 million sf of retail
supply.
The good news, from a statisti-
cal perspective, is that much of this
additional retail space is supported
by the dynamic growth in resident
population the market has been
experiencing during the last few
years. From July 2014 to July 2015,
Colorado’s population increased by
almost 101,000 people, according to
the U.S. Census Bureau.
While growth in both residential
and retail drives numerous benefits
to our local economy and often
fosters a vibrant retail shopping
experience, rapid growth, particu-
larly in the retail sector, presents
some significant challenges. During
the design and leasing phase of any
project, one of the most significant
of these issues is creating a market-
appropriate merchandising plan.
With so much new retail space
coming on line, it is important to
ask: How do I create a tenant mix
that makes my project a destination
and distinguishes it from everything
else in the market?
Ultimately, the goal is to establish
a tenant mix that creates moments
of discovery and encourages con-
sumers to extend their length of
stay. Just as grocery
stores place milk
in the rear of the
store, which forces
customers to walk
past all the other
merchandise, stra-
tegically planning
how and where
particular retail
tenants are located
within your project
should receive the
same level of con-
sideration.
Establishing a
merchandising
plan not only helps outline a vision
for the project, but also provides
direction to the entire development
team regarding the targeted tenant
mix, levels of amenities and related
design elements for the overall proj-
ect. To be clear, a merchandising
plan is more of a wish list than a
predetermined leasing plan; howev-
er, establishing this discipline within
your firm will keep everyone on the
same page, particularly early in the
development process.
Creating a merchandising plan
is fairly straightforward – simply
take out the proposed site plan and
assign target retailer names (or cat-
egories) to each space. The complex-
ity lies in determining which uses
work best next to each other and,
more importantly, which mix of uses
helps generate the highest rate of
return.
By way of example, cell phone
stores tend to pay a higher rent
when they are located next to a daily
traffic generator, such as Starbucks.
When asked where the Verizon store
is located, most consumers say, “It
is next to the Starbucks,” or provide
a similar location identifier. This is
largely because individual consum-
ers typically only use a cell phone
store when they need it and fairly
infrequently. However, when they
need a cell phone store, locating it
in a consumer’s regular shopping
pattern is an important site selec-
tion criteria for similar types of
retail tenants. Therefore, creating a
merchandising plan that reflects this
interdependent relationship among
retail tenants is a sound strategy.
In addition, a merchandising plan
should reflect the competitive land-
scape and the immediate market
demand. Far too often, merchandis-
ing plans are more aspirational than
reality based. For example, if a new
project is in close proximity to an
established retail center, creating a
plan that includes tenants already in
the market, or for which there is not
sufficient retail demand, has a high
potential for failure.
However, close proximity to an
existing retail concentration pres-
ents an opportunity to create an
alternative retail experience, which
might feel more authentic and local.
For years, “local and regional” also
James
McCandless
Director of retail
leasing, Continuum
Partners LCC,
Denver
Broker Insights
Image courtesy Continuum Partners
A strong tenant mix should create moments of discovery and encourage consumers to
extend their length of stay, as well as take advantage of interdependent relationships.
