DENVER-Investors last year gobbled up $482.4 million in retail real estate in the Denver area, according to a recent analysis by the Frederick Ross Co. While that is a 20.7% drop from the record $582.7 million in sales during 2004, it is historically the second best year for retail investment. For comparison, last year’s tally was 69% higher than the $284.9 million in sales in 2003, and more than 500% higher than the $78.6 million in retail sales in the Denver area in 2001.

Further, the average price per sf last year set a record of $143.63 million. The average cap rate also hit a new low, falling to 7.21% compared with 9.06% in 2004. Ross based its data on sales of $5 million or more.

It wasn’t for a lack of interest from investors that caused the dollar volume to fall last year from 2004, notes the report, rather the limited supply of properties. And that is fueling “a frenzy of interest in shopping center, tripe net investment and tenants-in-common opportunities,” the Ross study states.

“Investor demand for retail properties has remained nearly insatiable over the past five years,” says Frank Griffin, managing director of Ross. “This demand has been augmented by the relative stability of vacancy which has ranged from about 7% to 9% over that same period.”

Griffin says that cap rates have receded for several reasons. The most often cited is lower interest rates, which makes borrowing money cheaper. This enables an investor to pay higher price and achieve the same leveraged return had he or she paid a lower price in a higher interest rate environment.

Another reason for falling cap rates, Griffin says, is investors’ lack of confidence in other investment alternatives. The stock market’s volatility and the bond market’s trouble with climbing interest rates are the primary culprits. Relative real estate market stability and recent appreciation of values combined with a perceived lack of viable alternatives, makes real estate ea more accepted asset class than it has been in the past, he says.

Also, a shortage of properties available for purchase and ample money on the sideline has helped push prices higher and cap rates lower. What that means is that investors are willing to accept lower returns, he says. “Going forward, there is still a strong demand for retail assets,” Griffin says. “Buyers are continuing to compete for a limited number of properties, putting upward pressure on prices.”

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