CREJ

Page 14 — Retail Properties Quarterly — May 2021 www.crej.com R ecently I was reflecting on the past 12 months and the impact the pandemic has had on retailers and land- lords. Now that we seem to be moving forward in a positive and hopefully permanent “back to nor- mal” direction, what can we expect for the rest of this year? Before I look into my crystal ball, I think it’s important to take a quick overview of last year. This time last year was pretty much a complete shutdown. Tenants were asking for temporary and ongoing rent relief, landlords were trying to figure out who to help and talking to their lenders for help, and everyone was wondering how long this would last. Summer came and there seemed to be some positive momentum … and then the second wave and another shutdown hit, which greatly impacted many retailers during the holiday season. During this time period, many local retailers closed their doors. Store closures and bankruptcies also were rampant at a national level. Some of the notable retailers that filed for bankruptcy include: Tuesday Morning, Pier 1 Imports, Stage Stores, 24 Hour Fitness, GNC, Stein Mart, Century 21, Guitar Center, Village Inn, Bar Louie, IHOP, Chuck E. Cheese, Golden Corral, Ruby Tuesday, Rubio’s, Punch Bowl Social and CiCi’s Pizza, just to name a few. Some of these retailers complete- ly shut their doors while others used this time period as an opportunity to reject leases, close underperform- ing stores and position themselves for future growth.We also know that “essential business” retailers as well as drive-thru concepts flourished dur- ing this time period and, in some cases, posted historical sales numbers. Overall retail activity has picked up since the begin- ning of this year, and I believe this trend will continue through the rest of the year as well as the years to come. Following are some of the categories that will be the most active in our market. n Essential businesses. Grocery stores from large-format stores to smaller, more specialty type stores will continue to look for sites and open new stores. Included in this arena also will be discount-oriented stores such as Dollar Tree, Family Dol- lar, Dollar General and Five Below. n Drive-thru operators. Existing con- cepts in our market such as McDon- ald’s,Wendy’s, Chick-fil-A and Taco Bell will pursue sites to fill in open trade areas. New operators such as In-N-Out Burger andWhataburger will be seeking pad sites to fit their expansive growth plans for Colorado. Aside from fast-food operators, local and national banks as well as credit unions will be seeking sites for their expansion plans. n Convenience stores. Probably one of the most competitive categories that will continue to pursue sites throughout the Colorado market is convenience stores. Murphy Oil, Kum & Go, Maverick, QuickTrip, Choice Market and Circle K will continue to be aggressive and it is not uncommon to see multiple offers for the right pad site and/or redevelopment site. n Small-format/quick-service restau- rants. These retailers will be aggres- sive in finding the right sites to fit their size and location requirements. Concepts with a strong carryout and/ or delivery component offer a safe- guard for current and future indoor seating restrictions. The above-mentioned categories are certainly the bright spots in retail and will be popular for retail develop- ments underway as well as planned ones. Developers will continue to have strong pad interest in addition to retailers for small shop develop- ment. On the flip side, I believe some retail will lag and not receive much interest. n Large-format restaurants. This sec- tor was one of the worst hit during the pandemic. I do see a rebound, but it will happen once limited seat- ing restrictions are lifted. Positive momentum will begin come sum- mertime and continue through the end of the year. n Older/outdated shopping centers . As I drive the different trade areas, I have noticed more vacancies in Class B and C shopping centers. Most of the vacancies are in-line spaces that have deeper bay depths, with no real draw to the center and noticeable deferred maintenance. There is not a large pool of ten- ants to backfill these spaces and landlords will need to be creative in order to lease up these vacancies. With such a demand and shortage of housing in Denver metro, some landlords may want to consider a complete redevelopment of their site. n Retail centers with very high triple-net expenses. As we have seen over the past five-plus years, NNN expenses for many retail properties/ developments have gone through the roof. NNN expenses in the mid-teens to mid-20s per square foot seems to be the norm these days and I don’t anticipate a real change in the future. Real estate taxes certainly have been a big part of this increase. Unless the space is spectacular real estate, the combination of a high base rent and NNN expense will limit the active tenant pool for this type of product. Landlords may need to make an initial concession – perhaps ongo- ing concession for over-market NNN expenses while they work to reduce their actual NNN expense. In closing, I do feel there is pent-up demand from the consumer for many retailers.We have seen essential busi- nesses and even some nonessential businesses flourish and will continue to do so. Now it’s time for some of the categories that were greatly impacted by the pandemic to come out of hibernation. Every day more people are getting vaccinated, COVID-19 cases seem to be going in the right direction, stimulus checks have been mailed, restrictions are easing, the labor market is recovering and con- sumer confidence is building.We still have some tricky waters to navigate through, but momentum is moving in the right direction, especially com- pared to this time last year. s richo@creginc.com Bright and weak spots for Colorado’s retail future A National General Contractor With a Local Presence Since 2005 www.scheinercg.com Market Outlook Rich Otterstetter Partner, Crosbie Real Estate Group LLC