Denver Retail Notches 2 Years Of Improvements As Vacancy Dips

Denver-area retail real estate showed signs of continued resilience during Q1 2023, posting its eighth consecutive quarter of positive net absorption as tenants scooped up more than 342K SF of properties, according to CBRE.

At the same time, the city’s overall vacancy rate for retail properties in Denver declined 80 basis points year-over-year to 6.1% while asking rents stayed stable at around $20 per SF across the metro.

Meanwhile, the sector is struggling to deliver new spaces as the cost of capital and construction continue to increase, CBRE found. This is driving tenant demand away toward more suburban locations to find a good deal. 

“Significant tenant demand and low availability continue to drive the retail market away from its state of uncertainty seen leading up to and during the pandemic,” the report said.

Nationwide, the retail industry suffered significant setbacks that some say were years in the making. Developers were slow to pick up the pace of construction following the Great Recession, an issue that was compounded by the pandemic in 2020 as offices, restaurants and retailers were forced to shut their doors. 

Now, the industry is showing signs of strength in an environment of low availability and little development. CBRE anticipates high inflation and rising interest rates will ensure that the industry's solid fundamentals continue through the end of the year. 

Going forward, there are multiple economic indicators that could work in Denver’s favor. Employment in the hospitality and leisure industries continues to account for most of the job growth in Denver. That accounts for more than 40% of the total jobs added in Denver over the first two months of the year, CBRE said. 

There are also several pre-committed projects that are set to deliver between Q2 and Q3 2023. For instance, King Soopers is opening a 103K SF store in Erie, about 45 minutes north of Denver. Costco is also planning to open a 150K SF store in Longmont while Furniture Row is opening a 74K SF project in Littleton. 

CBRE said these pre-committed projects will likely “fuel the retail delivery volume in future quarters.”

But obstacles remain, especially in the capital markets. CBRE found Denver’s retail investment sales activity declined for the fourth consecutive quarter in Q1, driven primarily by the overall challenges in the financial system and the cost of capital. This trend is expected to continue in 2023 as consumers grapple with rising interest rates and stubborn inflation.