CREJ - Retail Properties Quarterly - November 2016
Denver is growing. All you have to do is look up anywhere in the urban areas of downtown and the construction cranes dotting the sky are inescapable. High-rise apartments have been cropping up on what seems to be every remaining piece of land downtown. This influx of new residential growth has helped fuel demand for restaurants and retail services to serve the growing population, but with this growth there are the inevitable growing pains that come with it. The rise in dense mixed-use development has pushed land prices to historic levels and rental rates for retail spaces downtown continue to rise. There are many retail and restaurant tenants operating in Denver’s downtown neighborhoods that are beginning to express concern that the real estate market and rising rental rates are outpacing their ability to increase sales. The millennial demographic, which is driving this urban growth, is paying more of its income toward housing. And while these younger renters are looking for entertainment value and new experiences, they also are looking for ways to stretch their dollars. This has created fierce competition for restaurants and retailers, not only with regard to the number of new concepts and restaurant trends they offer, but also for ways to keep providing value, which is making it harder to grow and be profitable. At times, lost in all the excitement of downtown Denver’s growth is the growth of the suburbs. A trip through southeast Aurora, Parker, Caste Rock, Arvada, Westminster and Commerce City will tell you that construction of new homes in the suburbs is booming. The movement of young families heading out of the city and into the suburbs is not necessarily a new thing, but the attributes these suburban migrants are looking for is changing and driving the decision-making of retailers and restaurants. The majority of households formed by young adults won’t take up residence in urban areas, according to a recent study by the Urban Land Institute, “Demographic Strategies for Real Estate.” Instead, they will gravitate to so-called “surban” areas. ULI’s report states “surban” areas bring the best of urban living to a more affordable suburban environment. The report predicts that 79 percent of new households over the next decade will settle in these areas. With the limited supply of good available locations, the increase in rental rates and the constant pressure from competitors, more retailers and restaurants are looking to the suburbs for future growth plans. We saw something similar from breweries a few years ago. There was rapid growth in the number of breweries opening in downtown Denver, which made for intense competition for space. In response, breweries turned their attention to the suburbs where spaces were easier to come by, competition was near nonexistent and there was a customer base who was eager to spend money closer to home. Most recently, we worked with clients such as Hunter Bay, a Montana based coffee roaster, and Cherry Hills Sushi Co. Initially both were looking for locations in Denver’s urban neighborhoods, but ended up outside the city’s core. Both companies found a prominent location in Olde Town Arvada at a reasonable lease rate and a demographic that was eager for their business. But, it’s important to note, not all suburbs are created equal. The trend of people, especially young families, moving from urban areas into the suburbs is nothing new. It is a trend that has persisted since the 1950s in the U.S. What is changing is what these young families and suburban migrants are looking for or, more importantly, what they are looking to bring with them from their cute little bungalows and Denver squares in Wash Park, City Park and the Highlands neighborhoods. The traditional aspects of the suburbs that still attract people from the city’s core include larger, but more affordable homes, backyards, quieter streets, less congestion and better schools. But now there are aspects of urban living these new residents are looking to bring with them. We are seeing competition among suburban cities to offer a downtown area that provides a walkable gathering place for residence to congregate. A place with restaurants, bars, breweries, coffee shops, yoga studios and hair salons that residents can call their own. What is old will be new again – this notion of a town square is as old as towns themselves, but there is a new importance placed on it. Potential residents are making it an important part of their decision on where to live and cities are responding by trying to create a slice of urban life in suburbia. Over the last decade, outdated large enclosed shopping malls have become opportunities for cities to create an urban feel where no real town center previously existed. Englewood took the opportunity to transform the Cinderella City Mall into what is now the Englewood City Center. Lakewood’s once-thriving Villa Italia mall is now Lakewood’s Belmar development, which serves as the city’s gathering place. Places like Olde Town Arvada, Downtown Littleton, Englewood, Louisville and Longmont have the advantage of having a historic downtowns that have charming older buildings, wide sidewalks and a dense concentrations of historic buildings that already possess the physical characteristics of an urban setting. Other cities without the advantage of a historic downtown have developed new large retail and mixed-use developments to create a downtown feel where it did not exist before. Examples include Orchard Town Center in Westminster, Southlands in southeast Aurora and Streets of SouthGlenn in Centennial. While a few suburban cities have both a historic downtown they are redeveloping as well as a larger scale, open-air mall to create gathering spots for their community. Longmont is a great example. The city is working to revitalize its historic downtown and redevelop its Village at the Peaks mall with urban characteristics. The future of retail is in the ability to create experiences and gathering places. There are ample opportunities for retailers and restaurants to expand their concepts into the suburbs. Cities are competing to attract the next generation of residents. The future of a suburb’s success, to some degree, will depend on how each city adapts to embrace urban characteristics by creating gathering places for the community in order to attract this new generation of residents.