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Page 4 — Retail Properties Quarterly — August 2019 www.crej.com A team that inspires confidence. ™ (303) 657-9700 BrinkmannConstructors.com Market Update T he Denver retail market is hot, when is it going to cool off?This is what Denver retail landlords are asking their brokers as we near 2020. Frommy institutional retail clients, to local ownership groups, a ques- tion I get the most these days is, “The economy in Denver is booming, how long is it going to last, and what does this all mean for my retail asset?”My response to this question includes sev- eral factors, starting with a look at the current state of the local and national economy. Denver has been riding the same eco- nomic surge that our country has been on for the last 10 years. As of July, U.S. economic expansion became the lon- gest in history, hitting its 121st consec- utive month of expansion, according to a report fromMetro Denver Economic Development Corp. During this cycle, Denver has been on the radar as a top market nationwide and is no longer an emerging market. Denver has emerged. When discussing the Denver market with retailers, I no longer need to try and convince them that Denver is not a cow town. I tell them to come put their boots on the ground in Denver and let the city’s energy speak for itself. Our city consistently has outper- formed the national average for both employment and population growth during this time. Between May 2018 and May 2019, employment in Colo- rado rose 1.8 percent, adding 48,200 workers. National level employment increased over the same period by 1.5 percent. Record amounts of capital continue to be placed into the Denver market from international and national inves- tors. Job growth, in-bound migration and the expansion of Denver’s urban transit system are all major contributing factors. Looking at future forecasts, most economists indi- cate that the U.S. will begin to enter a recession at some point during 2020. Predictions of upcoming economic slowdown vary widely and are subject to international tariffs, geopolitical pressures, potential domestic interest rate fluctuation and uncertain national employment growth. Howwill this impact Denver’s retail market? Undoubtedly, Denver will have the same recessionary pressures that the rest of the country will experience, but I predict it will be less dramatic than some of the secondary markets in the country. Denver’s economic funda- mentals remain very strong. There are other factors Denver retail landlords should consider as we approach 2020. • Tenant mix, exposure, saturation. Landlords should be aware of their retail tenant mix and be cognizant of the exposure they may have should a recession occur. Denver, like other major markets, has experienced rapid expansion of retail tenants in fitness, food and beverage, and entertain- ment. Denverites have no lack of these options. If someone has enough energy, every day of the week a Den- ver resident could choose to workout at a different boutique gym, dine and drink with friends at one of our many award-winning restaurants, bars and breweries, and then head to an exciting entertainment venue to end the night, without repeating retail vendors.That’s incredible. However, in some trade areas throughout Denver, category saturation is becoming apparent. Not all these concepts will weather the slowdown as well as others. Heavy category competi- tion and poor operations will expose a retailer’s weaknesses. As a result, land- lords with these types of tenants need to be more alert to gross occupancy costs relative to tenant sales, as well as its tenant’s credit/balance sheets. Which types of tenants are in your retail asset? • Product type and location. Top- performing anchored suburban assets, sites located within the urban core, as well as transit-oriented sites, will fare better than unanchored suburban strip centers, which will be most impacted. These assets continue to reinforce the daily customer traffic generation that is more critical than ever for a retailer’s success. Leasing activity and vacancy levels in Denver reflect this.To achieve high occupancy levels, unanchored suburban strip centers will be further forced to rely on tenants with lower credit, discounted rent or seek alterna- tive nontraditional retail uses such as office/community space.What kind of retail asset do you have? • Internet and e-commerce. The inter- net and e-commerce will not be the detriment of all retail.There is no doubt that retail, similar to co-working in the office market, is evolving. Res- taurants are steeped in competition with online food delivery to see who can deliver food the fastest to the con- sumer. Grocery stores are under the same pressure.Those retailers that can provide speed, quality and an amazing customer experience will continue to be successful, despite the internet.The gap of those that do not adjust to our changing retail climate will continue to widen. How are your retail tenants adjusting to this change? As we get closer to 2020 and begin to experience potential economic headwinds, keep these factors in mind. I predict that the Denver retail market will continue to shine but its retail landlords should be observant and prepared for whatever level of recession we may experience. Are you prepared? s Recession? Preparing retail assets for 2020 Cory Dulberg Retail broker, NAI Shames Makovsky Undoubtedly, Denver will have the same recessionary pressures that the rest of the country will experience, but I predict it will be less dramatic than some of the secondary markets in the country.