CREJ

November 2021 — Retail Properties Quarterly — Page 25 www.crej.com the sub-6% range, landlords have been able to achieve positive rental growth on average. Currently, availability rates reg- ister 6.2% and are trending downward in the wake of two consecutive quarters of positive absorption accounting for a half-million square feet. n Inflation’s impact on asset valu- ations. Inflation is impacting retail tenants, consumers and landlords. With the United States’ money sup- ply increasing by one-third and the continued supply-side disruptions, input costs have continued to rise. The Federal Reserve has suggested that it could raise the federal funds rate in late 2022 or 2023 to offset infla- tion, however it also plans to taper its bond buying program in the near term, which is placing upward pres- sure on Treasury yields. A recent report published by Real Capital Analytics suggests that cap rates historically have not moved in lockstep with Trea- sury rates but rather fluctuate as a function of risk tolerance and the required spreads that debt and equity require at any given time. Given the large amount of buyer capital chasing Denver retail assets and that many sectors of the retail market have been battle tested, retail will continue to offer investors attractive risk-adjusted returns. Cap rates are likely to hold their current levels if not continue to trend downward. Should cap rates trend upward, retail likely will still offer rent growth, which will defend and place upward pressure on current asset valuations. Should broad infla- tion prove to be more persistent than transitory, retail rent rolls that consist of triple-net leases with below-market rents or that have percentage or Con- sumer Price Index-linked rent increas- es will be highly sought-after. s riki.hashimoto@nmrk.com frazier.cavness@nmrk.com Hashimoto Continued from Page 4 Newmark Research Denver’s unemployment rate has been positively correlated with retail space availability rates. However, the correlation has not be nearly as pronounced since the COVID-19 outbreak as compared with what followed the Great Recession. Newmark Research Historically, as Denver’s retail availability rates have trended downward and/or plateaued in the sub-6% range, landlords have been able to achieve positive rental growth on average. Currently, availability rates register 6.2% and are trending downward in the wake of two consecutive quarters of positive absorption accounting for a half-million square feet. to handle losing its extra free patio spaces. Most people have been cooped up at home for the last 18 months, and many are vaccinated and ready to go out again. This pent-up demand represents a great opportunity for res- taurants to shine, and many are see- ing sales volume above pre-pandemic numbers. Nevertheless, there are uncertain waters ahead. Will there be another variant form of COVID? Will the rate of vaccinations and cases finally create herd immunity? Or will an unforeseen virus surge cause another shutdown? These are all questions going through the restau- rant owner’s mind. The victors will be those who stay vigilant to changing conditions and remain prepared to quickly pivot the way they do busi- ness on short notice. Although the ultimate outcome of dining patio spaces still is yet to be determined, the key takeaway is the ability to adapt when dire situ- ations are presented. Those who sit back and remain complacent will not be successful. One of the great business les- sons the pandemic has taught us is something property owners should all consider when leasing a space: Find tenants who can innovate and adapt to a changing environment, or be prepared to re-lease the space. s szall@zallcompany.com Zall Continued from Page 12