CREJ

Page 4 — Retail Properties Quarterly — February 2019 www.crej.com BIG OPPORTUNITIES ARE AVAILABLE IN DOWNTOWN SUPERIOR. Just outside Boulder and a short commute from Denver, a vibrant, new Downtown Superior is taking shape. This urban hub offers land for office and mixed-use residential/ retail, plus new office and retail space built to suit. The area offers competitive economics, easy access to Denver International Airport, an educated employment pool and a sought-after location. It will be an energetic, eclectic mix of retail, shopping, dining, entertainment and living— walkable, sustainable and surrounded by acres of gorgeous Colorado open space. Fully entitled for up to 817,600 square feet of office, retail and restaurant space; 1,400 residential units; and 500 hotel rooms. Visi t DowntownSuperior.com FRESH OPPORTUNITIES FOR BUSINESS, RESTAURANTS, RETAIL AND MORE. That’s a Superior idea. D enver’s retail sector continues to improve, driven by a strong local economy and a balanced supply and demand of retail space. Favorable demographic trends are encouraging many national retailers to establish or expand their presence along Colorado’s Front Range. Those factors also are encouraging a variety of digitally native brands like Amazon, Untuckit andWarby Parker to engrave a physical footprint in Den- ver. Cherry Creek, in particular, has become an attractive landing spot for online companies looking to develop brick-and-mortar locations. In addition to demographic trends, the metro’s tight labor market is sup- porting an increase in spending power as a number of high-paying, white- collar jobs are being created. This includes a plethora of new tech and health care jobs. Meanwhile, although supply of new construction reached post-recession highs, new retail deliv- eries still are only a fraction of what they averaged historically before the recession. These positive trends remain crucial to improving Denver’s retail market in addition to supporting a clear horizon for the sector. Retail vacancy in the Mile High City remains on a downward trend as strong employment growth supports increased consumer spending that, in turn, has brought an influx of new retail- ers. The heightened retail demand Denver currently is witnessing is par- ticularly evident in the metro’s most construction-heavy submarkets, includ- ing downtown Denver, where vacancy rests in the mid-2 percent band. Sever- al low-vacancy pockets underpinned a metrowide rate of 5 percent at the end of third-quarter 2018. Looking ahead, market vacancy should remain on a declining trajectory throughout 2019, supporting strong rental boosts as retailers vie for the decreasing amount of available space. The Colorado Boule- vard-Cherry Creek submarket should continue to log robust rental gains as revitalization efforts in this area’s southern section boost its appeal. A progressively more urban setting in the submarket’s most northern parts also is attracting an increasing number of young professionals with considerable spending power. Addi- tionally, rent growth in Broomfield and Westminster has been rapid in recent quarters as Denver’s Northwest corridor becomes more satu- rated with large- scale employers, fueling household formation. Favorable demo- graphic trends con- tinue to benefit Denver’s retail market, pushing development to a cyclical high of approximately 1.2 million square feet in 2018. Looking into 2019, construction is expected to decrease by roughly 40 percent to 690,000 sf, with a large portion of deliveries com- prising small shopping centers. Devel- opment will be spread throughout the metro; however, Broomfield and Castle Rock will receive slightly more inter- est from builders. Additionally, more than a dozen single-tenant structures are to be developed, many of them being quick-service establishments along major thoroughfares including Highway 36 and Interstate 25. During the coming years, retail construction should begin to accelerate in eastern sections of Aurora as the aerotropolis planned near Denver International Airport takes shape. In the past 12 months, transaction volume increased modestly as inves- tor optimism in Denver continued to climb. Capitalization rates for retail properties of all types have seen upward pressure, with the largest increases seen in properties featuring “big-box” retailers or C Class shop- ping centers in older or over-retailed submarkets. Grocery-anchored neigh- borhood shopping centers and single- tenant net-leased assets with strong, corporate signatures continue to trade at levels close to their record lows. The average price per sf also has seen a marginal decrease to $346 over the same period. Transaction velocity on retail assets between $1 million to $5 million remains strong; however, the volume of transactions over $10 million decreased for the second con- secutive year. Investors continue to target dense, infill Denver neighbor- hoods both for redevelopment oppor- tunities as well as for pride of owner- ship, trophy assets. One such notable transaction was Edens purchase of a seven-property portfolio in River North for $50 million, which included Den- ver’s Central Market, Il Posto, Sushi- Rama and Park Burger. After acquiring several additional purchases of adja- cent buildings, Edens now owns the bulk of two of the busiest blocks in the RiNo neighborhood. Overall, the retail investment out- look in Denver remains promising as a diverse pool of buyers will continue to target the metro area.West Coast investors, particularly those in 1031 exchanges, will remain a significant source of potential buyers. Moreover, local investors in other product types, especially those exiting multifamily investments, will look to take advan- tage of the higher yields offered by investments in retail properties. Local developers will continue to focus on infill, redevelopment opportunities, particularly smaller-format retail buildings in high-traffic corridors. Assuming there are not any dramatic increases in interest rates, 2019 should be a robust and prosperous year for retail in the Denver metro area. ▲ Denver’s retail industry continues to improve Market Update Drew Isaac First vice president, investments, Marcus & Millichap Ryan Bowlby Senior associate, Marcus & Millichap Looking ahead, market vacancy should remain on a declining trajectory throughout 2019, sup- porting strong rental boosts as retailers vie for the decreasing amount of available space.