METRO-AREA RETAIL SPACE IN DEMAND
Disappearing big-box retailers are giving way to fast-casual dining, entertainment and fitness businesses.
The Denver metro area’s retail real estate market produced what on the surface look like incongruous statistics in the third quarter of this year: increased vacancy and higher rents.
But that’s what you get in a place where the economy and population are booming at the same time the retail industry is undergoing an evolution that is weeding out some outmoded stores types in favor of emerging, more popular uses, market veterans say. Particularly, fast-casual dining, entertainment and fitness businesses are taking on desirable spaces left behind by shrinking retailers such as Staples, Sears and Macy’s.
Retail vacancy increased to 6.8 percent in the Denver area in the third quarter of 2017 over 6.1 percent in the second quarter of the year, according to report released last week by CBRE Research. That is the highest percentage of empty shop space in the metro area since late 2013, according to the commercial real estate firm, but is still near historic lows.
Average asking lease rates for the quarter rose to $18.97 per square foot, 4.4 percent higher than the $18.17 per square foot being sought in the second quarter of this year and 11.3 percent higher than at the same time in 2016.
Part of what is driving that surge is an ongoing trend of low availability in the mar-
ket, with just 349,948 square feet of new space added in the last quarter. There is 1.4 million of square feet of space under construction, including the more than 330,000square-foot Denver Premium Outlets development in Thornton, CBRE says.
“The best spaces are highly sought after,” said Jon Weisiger, senior vice president with CBRE Retail Services. “We’re still seeing good demand because, relative to prior cycles, we have very little development coming online.”
Weisiger said there is concern in the retail real estate market about the impact of competition from online retailers, but he has been encouraged by the types of businesses that he is seeing move into some of the spaces being vacated by fading retailers. CBRE was tracking 80 vacant big-box stores in the market at the end of the third quarter, up from 76 earlier this year but still lower than the 92 empty spaces in mid-2016.
“I would say there are some obsolete concepts in the market. Box retailers like Staples have given back some spaces,” he said. “In the better locations, there are secondary users that are taking some of those spaces. We’ve seen a big impact of a number of fitness users that you have probably seen open up in the market. Chuze Fitness, Crunch Fitness … Planet Fitness.”
The third-quarter opening of a 37,500-square-foot Chuze gym at 5105 W. 120th Ave. in Broomfield headlined some of the notable transactions in CBRE’s report. The gym took over for a Hobby Lobby store that departed for a space closer to Interstate 25.
Weisiger said the restaurants, particularly fastcasual concepts, also have helped keep the market steady. He said grocery stores have been slow to react to ballooning population in the metro area, in his opinion, but he noted that King Soopers is planning a new 123,000-squarefoot store in Arvada.
In total, 41,759 square feet more of retail space were available at the end of the third quarter than at the end of the second quarter. It was a drop, but not a significant one in Weisiger’s view. Still, that number is a far cry from industrial space in the metro area. Driven by Amazon’s move into its 1 millionsquare-foot fulfillment center in Aurora, industrial users filled 1.9 million square feet of space in the Denver area in the third quarter over what they occupied at the midway point of 2017, a record for a three-month period in Denver, CBRE said. It marked the 30th consecutive quarter of more industrial space being occupied than let go.
Jessica Ostermick, director of industrial and logistics services with CBRE, said the metro area is benefiting from strong population growth and the emergence of the e-commerce supply chain when it comes to its thriving industrial market. But there is one other driver at work.
“Developers in our market have really stepped up to meet demand,” she said. “If they didn’t build new warehouses, then these growing or new companies coming into our market couldn’t expand into those warehouses.”