You Want Hot? Look at Retail

DENVER–Retail centers and freestanding retail buildings in the metro area continue to be hot sellers, according to the latest Marcus & Millichap report. “It’s no wonder,” the report notes, as the overall vacancy rate remains relatively low and stable at 6.9% and rents for all types of properties are rising.

Indeed, the market is on target to sell more than $500 million in retail properties this year. “Further, the average price per sf approached $125 per sf, the highest average price per sf since the third quarter 1998, when Park Meadows (a regional mall in Douglas County) sold for $250 million.”

The report says the tightest retail markets are in the West and Southwest submarkets, where average vacancy rates are 4.6% and 2.8%, respectively. In those markets, rental rates are trending up slightly, to $15.57 per sf in the west and $17.17 in the southwest.

But it’s the northeast market that is showing the most improvement in terms of vacancy and rent increases. Its overall average vacancy rate is at 6.8%, down from 8.1% at the end of the first quarter. Rents also are increasing to $12.79 per sf, from $10.20 per sf a year earlier.

“In areas still affected by the high-tech downturn, however, the average vacancy rates are considerably higher,” the report warns. For example, along the Northwest corridor, the retail vacancy rate is at 9.4%, the highest in the metro area. And Boulder, at 8.8%, and the southeast corridor at 8.7%, aren’t much better.

“Average rents in the laggard submarkets have also been slowly eroding,” Marcus & Millichap notes. Overall, the market should end the year on a high note.

“With little new speculative construction currently under way, it appears unlikely that vacancy rates will rise significantly in the near term,” according to Marcus & Millichap.

Even though there are no clear signs of a turn around in the regional economy, investors’ appetite for retail shouldn’t abate. “Our expectation is based on the general lack of quality alternative investments that offer reasonably strong returns and relatively low risk,” according to the report. “Still, real estate investors are picky in these difficult economic times, and aggressively priced shopping centers that are in weaker locations or have poor operating histories are not likely to see much interest. On the other hand, demand for newer, anchored centers will continue to see a lot of buyer interest, as will well-priced strip centers with strong tenants.”