Denver Vacancies to Drop

DENVER-Denver’s overall vacancy rate is forecast to drop by 40 basis points to 7.7% by the end of the year, projects the latest Retail Research Report by Marcus & Millichap. The rising occupancy rate should allow owners to raise rents an average of 4% this year, to an average per sf price of $18.09.

Retail follows rooftops, as well as the employment base, and the metro area is expected to see 29,500 new jobs in 2005, a 2.5% boost from the previous year and the second consecutive year of expansion, the report notes. “The continued recovery of the local economy is expected to foster retail sales growth of 3.6% this year,” states the report.

Developers are taking advantage of the strong fundamentals. The metro area is on track to deliver 2.3 million sf of retail space this year. While that may seem like a lot, it’s an 8% drop from the 2.5 million sf delivered last year.

“Big boxes account for the majority of the new space,” the report notes. “Wal-Mart continues to open new stores in the region, and a Kohl’s was recently completed in Arvada. Target has three Supercenters slated for completion in the second half of 2005, while Home Depot is set to deliver a 132,000-sf store in Brighton by year-end.”

Multi-tenant properties, by contrast, account for only 25% of the total retail projects slated for delivery this year, the report notes. “The pipeline of planned retail projects is substantial, consisting of several large developments that will be built in phases over the next few years,” the report notes. An example is the 1.2 million-sf Northfield at Stapleton lifestyle center that will be anchored by the first Bass Pro Shops in the Denver area, as well as a Foley’s department store, the first Harkins movie theater and a Target. It is slated for completion in 2006.

Retail will continue to be a favored product type by investors. Retail properties, much like class A office buildings, are commanding high prices and low cap rates. But unlike office buildings, the fundamentals of retail are strong.

“Buyers are continuing to compete for a limited number of high-quality, for-sale properties this year, putting upward pressure on prices for these assets,” the report notes. “Denver’s investment climate remains robust, and given that the local economic recovery is well entrenched, we expect sales volume to remain high.”