FEBRUARY 2020 | ISSUE XIV THE WHEELHOUSE REPORT In-depth market information on Denver’s commercial real estate market. In This Issue FEATURE ARTICLE The Metamorphosis of the Shopping Mall MARKET REPORT Retail Market Analysis, Q4 2019 ASK AN EXPERT Property Tax Increases for Colorado Retail The Wheelhouse Report is The Metamorphosis of the Shopping Mall produced by Wheelhouse Commercial, a full-service By Andrea Ackerman, Business Development Manager commercial property management company headquartered in Since the first shopping mall opened in 1954 in Detroit, Michigan, the Denver, Colorado. U.S. has seen an exponential increase in the number of malls. Over the years, as consumer buying trends have changed, malls have undergone an Each month we bring you impressive metamorphosis themselves. Nationwide, creative developers, in-depth market news and often in partnership with local governments, are transforming older malls data on all segments of into vibrant, new communities with unique neighborhood focal points. Denver’s commercial real And Colorado has been at the forefront of this trend. estate market. THE BIRTH OF THE MALL In the early 1950s, Austrian architect Victor Gruen conceptualized the modern “shopping mall.” While in Detroit, Michigan due to a canceled flight, Gruen decided to visit Detroit’s landmark Hudson’s Department Store. During his visit he came to the realization that despite the store itself being quite nice, it was located in a deteriorating section of downtown. Run- 574 Santa Fe Dr, Suite 300 down city centers were a common occurrence across the country after the Denver, CO 80204 303.518.7406 wheelhousecommercial.com FEATURE ARTICLE The Metamorphosis of the Shopping Mall (from previous page) Great Depression and WWII, as veterans could such as transportation, accessibility, and nearby purchase housing outside of the city center, for residential neighborhoods, today these malls are no money down. The transformative American located on prime real estate. suburban migration had begun. TRANSFORMATION ACROSS THE NATION Gruen reached out to Hudson’s leadership and Innovative and responsive developers and explained that their customers were moving business owners are observing these trends and outside the city and so should they. He urged making moves. Nationwide, shopping malls have Hudson’s to embark on the creation of a suburban been repurposed into a variety of different uses, commercial development. This would allow them and the options seem endless. to be their own landlord, thereby also diversifying their business by becoming real estate developers As an example, big companies like Hewlett- and property managers. Lastly, this would give Packard and Google see these already existing them the authority to pick and choose other “communities” as opportunities to create retailers that would complement and enhance campuses and offices for their companies. An their core business, creating a first-ever synergy iconic mall in Rhode Island has converted their real among retailers. estate into micro-apartments while also keeping a mix of local businesses and conveniences such Gruen’s Northland Mall opened in 1954. It was as salons, coffee shops, restaurants, and other the first of its kind, and the largest mall that had “lifestyle” businesses. Tennessee transformed ever been built. It was a tremendous success, and one of their antiquated malls into an education was the genesis for what has become known as and sports venue; supporting their local hockey the shopping mall, and created a significant shift team, making space for a community college, and in consumer shopping habits. adding a public library. THE 21ST CENTURY MALL PLAGUE Repurposing trends include apartments, business Beginning around the turn of this century, and conference centers, churches, government shopping malls across America have been offices, hotels, senior living, medical campuses increasingly abandoned. These 100-500 acre, and public transportation hubs. Entities that 1-million-square-foot-plus centers are being embody community and convenience have vacated rapidly, as one retailer after another become the newest tenants. closes its doors or downsizes dramatically. They leave behind enormous, desolate buildings in In some cities, one might find that large portions the center of bustling neighborhoods. As many of a shopping mall converted to appeal to a strong of the properties are falling into bankruptcy, demographic of a population. One might find a creative real estate entrepreneurs are finding mixture of ethnic food markets, clothing apparel, tremendous re-development opportunities. As restaurant equipment, and perhaps event spaces the locations were originally chosen by indicators to hold cultural parties and gatherings. THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 2 FEATURE ARTICLE The Metamorphosis of the Shopping Mall (from previous page) Another recent trend is the ghost kitchen. This model transforms large, empty spaces into professional, food preparation facilities providing dining-less restaurants. This allows food concepts to sell their menus, by delivery only, without having the expense of brick-and-mortar and additional staff. Simon Properties has taken a vested interest in the tenants in their portfolio. In 2016, Simon and mall owner General Growth Properties, now owned by Brookfield Property Partners, saved Aeropostale from bankruptcy. Today, they’re at it again, making an $81 million offer to buy Forever 21. Owners are becoming players in their own game. MILE-HIGH TRENDSETTERS Colorado has been a trendsetter in mall transformations; more than 60% of the malls in the Denver Metropolitan area have been, or are currently being repositioned. • Cinderella City Mall, built in 1968, was known as the largest mall west of the Mississippi. In the early 2000s, it was redeveloped and is now called City Center Englewood – a mixed-use development that has revitalized the area. The 55-acre development includes a light rail station, city government offices, residential units, retail, a library, and even an art museum. • The Pavilions was Denver’s first “open air” mall. Gart Properties wisely located it right on the 16th Street pedestrian mall, in the heart of downtown Denver in 1998. • Southglenn Mall in Littleton was a typical indoor American shopping mall. In 2005, Alberta Development partnered with the City of Centennial to create the neighborhood-style Streets at Southglenn. • Crossroads Mall in Boulder, built in 1963, was another mall hanging on for dear life. In 2004 it closed, and re-opened as the new 29th Street Retail District, an outdoor shopping neighborhood. • Villa Italia Mall in Lakewood closed and defaulted to the city in 2001. The resulting redevelopment, Belmar, is generating four times the tax revenue of the old mall. Belmar’s open-air residential and shopping district consists of 900,000 sf of retail over 22 walkable city blocks and is 95% occupied. • Westminster Mall is currently in redevelopment. The city purchased the site and is acting as the “horizontal developer,” selling individual parcels to developers who are implementing the vertical construction. SOARING TO NEW HEIGHTS The use and intention of traditional shopping malls has shifted. Historically, they held clothing, apparel, and other retail choices. Today, mall owners are repositioning their assets to go far beyond retail, and adjusting to the needs of the community. By providing a welcoming new mix of uses, malls are producing a cultural win, and re-establishing a significant source of tax revenue. THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 3 MARKET REPORT THETHE WHEELHOUSE WHEELHOUSE REPORT: REPORT: July July 2019 2019 Retail Market Analysis: Denver Metro Q4 2019 Wheelhouse Commercial has compiled and analyzed the most recent retail market data from the last quarter. The table below reports some of the key market indicators from 11 submarkets across the greater Denver retail market, during Q4 2019. RETAIL MARKET DATA: DENVER METRO Q4 2019* VACANCY AVAILABILITY MARKET ANNUAL INVENTORY 12-MONTH UNDER CONSTR. UNDER CONSTR. 12-MONTH NET SUBMARKET RATE RATE RENT/SF RENT GROWTH SF DELIVERED SF SF % OF INVENTORY ABSORPTION SF Overall Denver 4.6% 5.8% $22.96 2.1% 155M 825K 1.1M 0.7% -322K West 5.1% 6.6% $20.32 2.4% 24,072,417 43,878 53,812 0.2% -97,740 Central 3.1% 4.6% $23.04 2.6% 21,132,203 131,083 130,946 0.6% -29,088 Northwest 5.9% 6.7% $20.71 2.0% 24,718,505 157,040 105,854 0.4% -202,515 South 4.6% 5.6% $28.22 1.5% 18,326,781 63,097 97,136 0.5% 10,660 Southeast 4.8% 4.9% $25.16 2.2% 15,361,520 114,102 42,345 0.3% -88,904 Northeast 5.0% 6.4% $21.18 2.3% 15,149,389 78,182 321,935 2.1% 148,298 Aurora 5.6% 5.7% $16.95 2.4% 12,148,974 108,471 93,350 0.8% -32,670 Southwest 3.5% 5.9% $20.57 2.2% 10,348,186 100,263 7,740 0.1% 120,887 Colorado Bl/ 4.7% 5.2% $42.52 1.2% 5,143,741 6,555 0 0.0% -105,631 Cherry Ck Downtown 3.0% 8.4% $31.73 1.0% 3,444,550 0 206,240 6.0% -75,226 Southwest 2.8% 5.4% $17.22 2.1% 1,257,082 0 0 0.0% 9,880 Outlying * Source: CoStar. The information contained in this newsletter is obtained from sources deemed reliable; however, Wheelhouse Commercial cannot guarantee the accuracy of the information provided. THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 4 MARKET REPORT Retail Market Analysis: Denver Metro Q4 2019 (from previous page) MARKET RENTS Retail rents began to moderate in 2019, with annual rent growth falling below 1% for the first time since 2011. However, considering that Denver experienced a six-year run of 5% annual rent growth this is not unexpected. And, all of the submarkets that we track regularly in this report, which constitute the core of the Denver metro area, saw at least 1% growth and some submarkets still clocking in at over 2% rent growth in 2019.