Retail Remains Strong for Rocky Mountain City

However, Trammell Crow cautions that with home heating costs forecast to be three times higher than last winter and gasoline prices not showing any signs of coming down appreciably, consumers' ability and willingness to spend is being called into question, at least for the short-term period.

So far, however, it's only good news for the retail market. The overall vacancy rate in the third quarter dropped another 10 basis points to 6.8%. The South and Southeast submarkets had the lowest vacancies in the area at 2.8% and 4.1%, respectively. None of the area's 10 retail submarkets, however experienced more than a 100 basis point change in vacancy.

Rental rates also improved. The weighted average retail rental rate rose 1.1% to $14.95 per sf. It is up more than 1.6% compared to the same period in 2004. The Central and Aurora submarkets led the area, with rent increase of 7.9% and 5.5%, respectively, according to Trammell Crow. Rents continue to climb overall, but at a much slower pace than during much of the past three years.

The market is still showing positive net absorption, but a fraction of where it was a year earlier. The metro Denver area recorded 69,986 sf of net absorption in the third quarter, bringing the total through the end of September to 510,103 sf. By contrast, the same period in 2004 saw 1.35 million sf of absorption. The South-Central and West submarkets fared the worst during the quarter, with negative absorption at 22,211 sf and 19,926 sf of negative absorption, respectively.

Development activity, meanwhile, continues. South metro's retail inventory grew by 1.21 million sf during the past 12 months, representing what Trammell Crow calls a "strong" growth rate of 7.2%. Four projects totaling 943,000 sf entered the south market during the fist half of the year. Another six development, with more than two million sf in total, are underway. Another six projects with a total rentable area of more than 500,00 sf, are currently in the planning stage, Trammell Crow notes. Redevelopment of older centers is also continuing with numerous projects.

Meanwhile, some softening in consumer spending is anticipated. Consumer spending in the metro area rose by 4.4% during the first half of the year, which is half the 8.5% pace posted for the same period in 2004. However, it is always easier to increase demand from a lower baseline, so most economist feel the 8.5% jump was unsustainable. Also, 27,200 new jobs have been created through August and consumer confidence is on the rise. However, skyrocketing energy prices, rising interest rate and high level of household debt have caused spending to come down from the "lofty heights" of the past several years, Trammell Crow notes.