Colorado Real Estate Journal - February 18, 2015
Investors snapped up $659.5 million in Denver-area retail developments in 2014, according to a CBRE analysis of the market. That is an 18.5 percent drop from the near-record sales volume in 2013, according to the report. In other words, sales volume last year dropped by $122 million – almost equivalent to the $124 million sale of the Cornerstar Shopping Center in Aurora, the single-largest retail deal in the metro area last year. However, Brad Lyons, a senior vice president in CBRE’s Retail Investment Properties Group in Denver, said the drop in sales does not signify a drop in demand, but a shortage of supply. “What I would tell you is that 2013 was one of the most active markets we have ever seen in recent memory,” Lyons said. “We sold a lot of stuff,” he said. “When it came to 2014, we had sold so much stuff in 2013 there was just not that much left to trade.” In 2013, investors were searching for assets that provided a high yield. “Bonds were expensive, interest rates were low and it was the perfect time to invest in real estate,” Lyons added. Lyons said based on discussions with colleagues across the country, Denver followed national trends in both 2013 and 2014. “Every market across the country slowed in 2014 from 2013 and Denver was no exception,” Lyons said. For sellers, the benefit of the shortage of properties was that prices were higher. “Last year, we saw record-low cap rates on a number of assets,” Lyons said. He said cap rates fell “pretty much across the board,” whether they were for grocery-anchored centers, large destination retail centers or strip centers. “On just about every one of our offerings we received multiple offers,” Lyons said. He said that he expects more of the same in 2015, with the exception that occupancy levels will rise. At the end of last year, the overall vacancy rate was 6.5 percent, about the same as at the end of 2013, according to CBRE. “Given that there is not that much construction underway, I would expect occupancy rates to rise this year,” Lyons said. Rental rates also will continue to rise, especially in strong markets, such as near Park Meadows, Cherry Creek, along the U.S. 36 corridor and in Boulder. “It goes without saying that downtown Denver will also do well this year,” Lyons said. “There is a lot happening in LoDo and around Union Station, which is generating a lot of buzz,” Lyons said. Indeed, CBRE pointed to the announcement that Whole Foods will open a 56,000-square-foot store in downtown as one of the retail highlights of last year. The Whole Foods will be the retail anchor for the Class A 17W apartment community being developed by the Holland Property Group. One thing that hasn’t yet boosted retail sales in Colorado or the nation is low gas prices, Lyons said. He noted a “disappointing” national retail report that was released in mid-January. “When we sit down and talk to retailers and investors, they think it will take some time for low gas prices to trickle down to consumer spending,” Lyons said. “People don’t seem to be using their excess discretionary dollars to go out and buy a new TV or a new car. At least not yet. That is something we are keeping our eyes on.”