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Page 6 — Retail Properties Quarterly — August 2017
State of Retail
Great Opportunities Available inWestern Centers’ Portfoliot t iti il l i t t ’ tf li
To schedule a showing at one of Western Centers’ 20 Shopping Centers
or for assistance in locating a new space for your business, please contact:
Corey R. Wagner
(303) 676-8211
Garrett Walls
(303) 676-8206
303-306-1000 | 10555 E Dartmouth Avenue, Suite 360, Aurora, CO 80014 |
Foothill Green, Littleton
Join new anchor, e Lucky Mutt, in one
of the few inline spaces available
Havana Exchange, Aurora
Excellent free-standing building and two
inline space available
Mission Trace North, Thornton
Rare opportunity of 16,000 sf junior anchor
space available at one of the State’s busiest
King Soopers anchored centers, plus four
other inline spaces available
Colfax/Wadsworth, Lakewood
10,000 sf anchor available now with opportunity
to incorporate brand into remodel of center
Cottonwood Square, Parker
Adjacent to King Soopers Marketplace, high
visibility end-cap and inline space available
Village Square, Brighton
Join Bomgaars, Dairy Queen (under
construction) and Specialized Physical
erapy, in the nal inline space available
W hile high-profile, big-box
store closures and Ama-
zon’s announcement of its
acquisition ofWhole Foods
fuel the narrative that brick-
and-mortar retail is coming to an end,
a deeper inspection of retail property
performance from a macro perspec-
tive suggests that the predictions of the
looming demise are greatly overstated.
Stable employment growth and rising
wages bolstered consumer spending in
May to 13 percent above the all-time,
inflation-adjusted high recorded in
2008.
Although e-commerce sales contrib-
uted significantly to this figure, this
shouldn’t be understood as the end of
retail, but rather as the beginning of a
new phase in retail’s evolution in which
opportunity and upside still exist.This
is particularly the case in Denver where
retail property performance metrics
such as employment, vacancy and
rents fare better than their correspond-
ing national averages.
Employment growth in the Mile High
City outpaced the 1.4 percent national
rate during the year ending in the first
quarter. Hiring was led by the educa-
tion and health services sector and
the leisure and hospitality sector. By
the end of 2017, Denver employers
are anticipated to expand headcounts
by 2.1 percent. Relatedly, the median
household income has increased over
the 12-month period ending in March
to $74,400 annually, which encouraged
greater consumer spending and sup-
ported absorption, vacancy and rental
improvements of retail real estate.
Although strong retail sales continue
to generate robust tenant demand for
space, the development pipeline will be
more modest this year.
In 2016, builders
delivered 762,000
square feet of retail
space.This year con-
struction activity will
moderate slightly,
with only 714,000
sf of space slated
for completion.The
northeast and north-
west submarkets
will receive the bulk
of new retail real
estate.The majority
of new retail space,
however, is preleased and will support
strong net absorption of 1.2 million sf
of new and unutilized space in 2017.
Necessity and lifestyle retailer demand
will account for a substantial portion of
the absorption of space this year, which
also will impact vacancy.
As of the first quarter, retail property
vacancy in Denver dipped to 5.1 per-
cent.Vacancy is expected to continue to
decline another 40 basis points, reach-
ing 4.7 percent by year’s end. In the
west and central submarkets, vacancy
sank below 4 percent and could fall
further as several projects for necessity
retailers including National Grocers,
CVS and King Soopers are underway.
As vacancy drops metrowide, rents are
expected to go up as a result.
By the end of the year, average asking
rents in Denver will jump a predicted
4.8 percent to $17.35 per square foot,
a new high. In the west and central
submarkets, rent growth was above the
metro average due to strong absorp-
tion.
It is worth noting that although
Denver’s economic fundamentals and
retail property performance metrics are
positive, the limited number of retail
asset listings slowed deal
flow over the 12-month
period ending in March.
In this period, deal flow
for single-tenant assets
compressed 13 percent.
Sluggish investments
sales activity was par-
ticularly pronounced
for multitenant proper-
ties, where transaction
velocity fell 23 percent.
Notwithstanding, buy-
ers were most active in
the central submarket,
where cap rates for
single-tenant assets
dropped into the low-5 to
mid-6 range. Initial yields
varied considerably, fall-
ing under 5.5 percent for
the best properties with
national credit tenants.
Higher first-year returns
were most commonly
found in peripheral sub-
urban markets.
Looking ahead, inves-
tors will scour the
market for value-add
opportunities, which
represents a wide range
of prices dependent on
tenancy, deferred main-
tenance and capital
requirements to bring
rents to market value.
Additionally, western submarkets hold
upside given that rent growth in those
areas has outpaced the rest of the
metro.
Going forward, the ability to turn the
current dynamics and negative head-
lines into new opportunities may end
up being one of the best wealth-creat-
ing strategies in retail real estate. Retail
is full of highly skilled and sophisticat-
ed owners and advisers, and those who
successfully reposition their properties
to take advantage of the market chang-
es will be poised to reap the benefits of
an industry that is a staple of American
culture.▲
Drew Isaac
First vice president
investments,
Marcus &
Millichap, Denver