WESTERN SNAPSHOT, AUGUST 2008

Northern Colorado Retail Market

Schaefer

Like the broader retail real estate industry, Northern Colorado continues to have its share of success stories and challenges. The area is not immune to macro-economic conditions but, with a population of approximately 540,000, two universities, an excellent diversity of stable employment and an expanding regional economy, Northern Colorado’s long-term outlook has never been brighter.

According to the Commerce Department, retail sales climbed in May by 1 percent, the highest gain in 6 months. Indicative of consumers becoming more cost-conscious, discounters such as Wal-Mart beat expectations with a 3.9 percent increase in May’s same-store sales. The largest retailer on earth has been busy in Northern Colorado, opening a new store in northwest Loveland and acquiring sites in Evans for a Sam’s Club and Timnath for a new SuperCenter. It is also well publicized that Wal-Mart is pursuing a site adjacent to Kroger’s King Soopers on Highway 392 in Windsor.

With Wal-Mart now under construction on the Timnath location and construction well underway on Bayer Properties’ Front Range Village in Fort Collins, the Harmony Road corridor is experiencing retail construction activity not seen since the construction of more than 1 million square feet of new retail space at Interstate 25 and U.S. 34 in 2006 and 2007. Front Range Village should provide for a welcome boost to Fort Collins’ sales tax coffers in light of some leakage in the past few years to the more regional Loveland and Johnstown areas.

With Colorado State University, its restored and vibrant Old Town, and numerous quality employers, Fort Collins remains a strong draw for many as confirmed by its No. 1 spot in Money magazine’s “Best Places to Live” rankings in 2006. A strong retail submarket with first quarter vacancy holding steady around 7 percent, the city’s new shop space rents in the mid-$20s to mid-$30’s per square foot, NNN. Vacancy fluctuation in the next 12 months will largely depend on how successful Front Range Village is at leasing speculative shop space that may accompany its lineup of anchors —Super Target, Lowe’s Home Improvement Warehouse, The Sports Authority and Staples — and junior anchors, and whether or not retailers abandon locations elsewhere in town to relocate to Front Range Village.

Just a short drive down I-25 from Fort Collins is the Loveland/Johnstown submarket. With the $250 million trauma center, 7,000-seat events center and 700,000-square-foot Promenade Shops at Centerra virtually constructed simultaneously near I-25 and U.S. 34 a few years ago, this area continues to be the greatest beneficiary of Northern Colorado’s regional growth. Aided by new Wal-Mart and Kohl’s openings, Loveland’s year-over-year sales tax collections through April were up 7.8 percent. The Johnstown area also benefited from a significant rise in sales tax collections with the openings of Ethan Allen, Bonefish Grill, Trek Bicycles and others at The Plaza at 2534.

Presently, the Loveland submarket has the lowest retail vacancy rate in Northern Colorado at approximately 5 percent. Barring any unexpected store closings, this market will likely tighten further with locally owned Jax Mercantile taking the last 50,000 square feet of the former Shopko Building on U.S. 34. Poised to add additional space to the Loveland/Johnstown area are The Plaza at 2534 (up to 600,000 square feet of retail and office space; first phase, 120,000 square feet, is complete) and Grand Station at Centerra (significant mixed use with 300,000 square feet of retail). Grand Station’s evolution from spectacular vision to reality has been slowed with groundbreaking recently pushed to 2009. McWhinney, the developer of Grand Station, cited an increased need for pre-leasing given the tighter debt supply.

Head east along U.S. 34 from the Loveland/Johnstown area to find the Greeley/Evans submarket, where first quarter vacancy rates have declined year-over-year from approximately 13 to 11 percent. Sam’s Club is planning to add a store on 32nd Street in Evans. Additionally, Regency Centers’ Centerplace of Greeley continues to grow. Best Buy and Sports Authority plan to open later this year.

Perhaps the most interesting opportunity in this submarket resides in the tired Greeley Mall. Dillard’s announced this spring the impending closing of its undersized men’s and women’s stores. This will allow the new owner, GK Development, some flexibility in its plans to take advantage of the mall’s proximity to the University of Northern Colorado and the strong retail trade area. If a strong public-private partnership can be forged and if the redevelopment is designed and executed correctly, GK will be able to turn this lump of coal into a shiny diamond in the heart of Northern Colorado.  

Ryan Schaefer is a principal at Loveland, Colorado-based Chrisland Inc.

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