The recently booming retail real estate market has now reached Denver.
While some restaurant closures and high-profile bankruptcies like Big Lots brought retail space back onto the market, the availability rate in the Denver metropolitan area was 4.8 percent in the second quarter, according to CBRE.
Total net absorption capacity reached 262,000 SF in the second quarter, compared to 81,000 SF in the first quarter of the year.
“We are the darling at the moment,” said Rhonda Coy, partner at Crosbie Real Estate Group Bisnowand meant retail across the country. “That wasn’t the case for a long time.”
Across the country, the retail market has returned to balance through years of demolition and conversion of retail space without any significant new construction.
Coy recalled the “retail apocalypse” before the pandemic and how the pandemic, combined with increasing competition from e-commerce, negatively impacted many retail businesses.
“I’ve been doing this for 17 years and for the first time in my career, they say, ‘Oh, retail is doing great, everyone wants to work in retail, retail is the darling, vacancy rates are at an all-time low,'” she said.
Coy describes the retail sector as being at a different point in the overall economic cycle compared to other commercial real estate sectors, as many large retailers have their own capital and are looking to expand and spend their own money.
“So it definitely feels like we’re a little bit protected from the volatility,” she said, “certainly (compared) to the office market and a little bit to the industrial market.”
While retail activity in the region remains strong, keeping pace with the housing boom along the Front Range, many current contracts will not close until next year, creating a delay that could negatively impact earnings for the remainder of 2024.
And that lack of inventory, Coy said, is making the retail market even more competitive than usual, due in part to pent-up demand following the pandemic.
“There are so many supply chain issues with electrical appliances and HVAC equipment,” she said. “Tenants have also built up demand internally. They have targets. ‘We need to spend a certain amount of capital to open a certain amount of stores by X date.'”
This competition for retail space, especially smaller store spaces, has increased demands on the Front Range. Coy expects more inventory to come online in the next 18 to 24 months, but believes competition will remain fierce, especially for high-end new construction.
“The industry is moving so quickly in new construction,” she said. “As a broker, you have to stay on top of what’s popping up and what’s coming next. We’ve been signing leases for several months now. It’s a great thing to represent landlords. But if you’re a tenant and you see walls going up, it’s probably too late.”
Coy noted that the Denver metropolitan area’s national retail industry, particularly quick-service restaurants, is doing very well and has the time, money, sales and energy to overcome the challenges of a very competitive market.
“Our retail has generally done very well,” she said. “We don’t have those big, vacant malls like we have in Michigan and the Midwest. We just haven’t had as much of an impact, or everything has been proactively redeveloped years before it went into disrepair.”
