Previous Page  6 / 28 Next Page
Information
Show Menu
Previous Page 6 / 28 Next Page
Page Background

Page 6

— Retail Properties Quarterly — February 2018

www.crej.com

Market Update

Denise Leal | 303.692.8838

|dleal@f-w.com

1/2 page - rst available right hand page

full color

A

s Denver’s population growth

and consumer spending out-

pace national levels, investors

and retailers target Denver and

its attractive business climate

for future opportunities.The metro’s

retail market in 2017 was underpinned

by record-low unemployment that was

near 2.4 percent. Denver’s workforce

expanded by 1.6 percent last year, or

by more than 22,000 new hires. Robust

employment growth, particularly

among degreed positions in the health

care and information technology

industries, lured many new inhabitants

to the Mile High City.The influx of resi-

dents obtaining high-wage jobs helped

push the median household income

over $75,000, encouraging a 4.8 percent

boost in retail sales.This jump follows

a 2.8 percent increase in 2016. At a time

when much has been written about the

demise of retail, the thriving economy

has continued to entice retail investors

and retailers to the greater Denver area.

Nationally, the 2017 holiday sales

figures saw the largest year-over-year

increase since 2011, with 95 percent of

holiday shoppers buying merchandise

from brick-and-mortar stores. Depend-

ing on the source, the holiday sales

increase was somewhere between

4.5 and 6 percent; the higher end of

that range would put it as the largest

boost since 2005.The most significant

increases were seen in electronics,

appliances and home furnishings. In

addition, per a recent survey conducted

by the International Council of Shop-

ping Centers, holiday shoppers spent

an average of $842 for gifts, while

the

increased traffic also drove consu

mers

to nongift-r lated purchases during

the holiday period. Holiday shoppers

spent an additional $261 (on average)

on entertainment, personal service

and food-related

purchases. Based

on current projec-

tions, retail sales are

projected to increase

another 4.5 to 5.5

percent in 2018.

In addition to this

year’s predicted

rise in retail sales,

the new tax law’s

favorable treatment

of pass-through

income makes own-

ing investment real

estate more attrac-

tive, while providing consumers with

more disposable income. Shopping

center investors, as well as real estate

investors of all types, will benefit from

the recent changes to the tax code.The

recent changes have reduced corpo-

rate tax rates on a portion of income

that flows from so-called pass-through

entities. Furthermore, real estate inves-

tors will be able to depreciate capital

investments in their property on an

accelerated basis.These changes will

increase the after-tax cash flow that

can be achieved from purchasing and

operating investment real estate. Lastly,

and just as important to retail own-

ers, cuts to personal income tax rates

will increase consumers’ disposable

income, creating additional upward

pressure on retail sales.

In 2017, a multitude of fitness centers

found their way into the metro area,

withVASA Fitness being one of the

most active, typically backfilling former

Safeway

/Albertsons locations in neigh-

borhood

shopping centers. Grocers

t rgeting health-conscious consum-

ers continue to expand. Natural Gro-

cers opened two new locations, while

Sprouts Farmers Market and Lucky’s

Market made

announcements for

expansion. Restau-

rants of all types

expand at a signifi-

cant rate in Denver

and are highly

sought after by

landlords and con-

sumers alike.While

these tenants often

require more expen-

sive tenant improve-

ment packages, they

consistently drive

traffic to neighborhood centers and

are in high demand by a consuming

public that now spends more on dining

out than it does on groceries. Discount

retailers remained another strong retail

segment with the additions of several

Family Dollar and Save-A-Lot stores.

The retail expansion in these segments

offset much of what was predicted to

be a “retail apocalypse” in 2017.The

city’s growing economy will put retail’s

doom on hold once again.

This year, Denver’s employment

growth will outstrip the nationwide

rate while strengthening its labor pool

with the addition of 24,000 employees.

The energy sector will gain traction this

year as businesses create employment

opportunities for new drilling fields

east of the metro and existing fields

in northern Denver near Interstate 25.

Despite the inflow of energy-related

positions, the tech sector remains the

anchor behind the city’s expanding

workforce. As population growth con-

tinues its strong, upward trend due to

the recent supply of jobs, household

formation exceeds the national mea-

sure by a wide margin, which will

induce demand in the metro’s retail

market.

As preleasing activity in the Den-

ver metro area stays robust and

retail demand increases, vacancy

rates will post a 20-basis-point

decline this year, pushing the rate

to 4.8 percent. Demand drives the

average asking rent to $19.14 per

square foot, up from $18.21 per sf

at the end of 2017. Neighborhoods

in Cherry Creek and areas along

Colorado Boulevard extending from

Alameda Avenue to Colfax Avenue

continue to capture the highest

average asking rents, while some

northern suburbs and parts of

Aurora will be on the lower end of

the spectrum. These strengthening

retail metrics indicate a healthy and

improving market, which should

continue in 2018.

The Denver metro area’s healthy

business environment continues to

outpace the nation’s and attracts

national investors. Decreasing

vacancy rates should persist while

rents are projected to increase in

shopping centers across the Denver

metro area. Retail sales saw strong

gains in 2017 and should see con-

tinued growth in 2018. While there

has been significant concern over

the future of retail in the internet

era, the underlying fundamentals

remain healthy and improved in

a year when many were predict-

ing doom. The recent changes to

the tax code will benefit shopping

centers not only from an ownership

perspective, but also by providing

consumers with more disposable

income to spend on retail, entertain-

ment and personal services. While

there may be some headwinds due

to increasing interest rates, the

Denver retail market should register

another strong year in 2018.

V

Strong holiday sales propel healthy expectations

Ryan Bowlby

Senior associate,

associate director,

National Retail

Group, Marcus &

Millichap, Denver

Drew Isaac

First vice president

investments,

Marcus &

Millichap, Denver