WESTERN SNAPSHOT, JULY 2009
Colorado’s Front Range Retail Market
1. MARKET MOVES
• Jon Hendrickson: Three projects that embody the Colorado Springs retail market are the University Village Colorado, Marketplace at Austin Bluffs and Broadmoor Gateway Pavilions. University Village Colorado is an open-air, 650,000-square-foot development anchored by Costco, Lowe’s Home Improvement Warehouse and Kohl’s. Marketplace at Austin Bluffs, a 300,000-square-foot redevelopment of an enclosed property, is anchored by King Soopers. Broadmoor Gateway Pavilions is a planned 75,000-square foot redevelopment of a cluster of retail, hotel and single-tenant properties into a Whole Foods Marketplace-anchored shopping center. All three projects are open-air centers in strong infill locations, anchored by some of the strongest retailers in the country. In addition, the owners of these shopping centers also face the challenge of leasing retail space in an environment that has fewer tenants expanding, increasing vacancies and declining rental rates. Rents in these new high-quality shopping centers range from $22 to $34 a square foot.
• Jason Ortiz: In the midst of what many consider to be the bottom of the current commercial real estate cycle, a couple significant Northern Colorado retail developments are moving forward with full steam. North College Marketplace, a 175,000-square-foot grocery-anchored shopping center in Fort Collins, could break ground as early as third quarter 2009, with delivery projected in or around fourth quarter 2010. Another notable Fort Collins project is the Shops at Lake Robin, a 130,000-square-foot shopping center to be anchored by Safeway. The economic downturn has clearly demonstrated that the grocery-anchored center is the preferred product for multi-tenant retail.
2. MARKET MEASURES
• JH: The two indicators that continue to gauge the health of the retail sector are consumer spending and vacancy rates. Consumer spending trends will indicate the ability for retailers to survive and continue paying the rental rates that are being required by landlords. If consumer spending does not increase or continues to decline as it has during the last 3 quarters, vacancy rates will increase and rental rates will decrease.
• JO: Overall, Northern Colorado retail faces the same challenges the sector faces nationwide. Key indicators of retail’s future health are vacancy rates and tenant concessions. With the addition of new product to the market, combined with increased vacancy, there will likely be more cannibalism amongst landlords as they compete for new leases. Another key indicator for the retail sector is sales velocity. As the market appears to be at a standstill, there is almost no data to support the new watermark for the value of retail investment real estate. With cap rates relatively unknown, it will be difficult to assess and forecast values for current stock of retail real estate until velocity improves. Once the new watermark is set, capital will begin flowing to the retail sector, and a healthier market will emerge.
3. THE MARK OF THESE MARKETS
• JH: More soldiers are expected to return home to Fort Carson and the surrounding Colorado Springs area, which will expand the local economy and have a positive long-term effect on the retail sector. Approximately 5,000 to 10,000 soldiers are slated to return to Colorado Springs within the next year. The population increase will bolster the housing market, rental markets and spark consumer spending.
• JO: Fort Collins was ranked by Forbes.com as the second-best place for business and careers in the nation for 2009 (Greeley, Colorado, made the list at No. 37). Northern Colorado is anticipated to be among the first markets to recover from the downturn, with its solid employment base, anticipated job growth and excellent quality of life insulating the area from the decline experienced elsewhere. The area has the fifth-most educated workforce in the nation, with 33.7 percent of Colorado’s residents in possession of a bachelor’s degree or higher. It is anticipated that fourth-quarter job growth will be positive, adding consumer spending dollars to support the retail sector.
— Jon Hendrickson and Jason Ortiz are retail investment specialists based in the Denver and Fort Collins offices, respectively, of Marcus & Millichap Real Estate Investment Services.
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