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Denver Market Report – Retail Q3 2020

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Denver Market Report – Retail Q3 2020 RETAIL MARKET REPORT Q3 2020 Denver, CO OUR NETWORK IS YOUR EDGE. PREPARED BY: All information is from sources deemed reliable and is subject to errors,omissions, change of price, rental, prior sale, and withdrawal without notice. Prospect should Brandon Langiewicz carefully verify each item of information contained herein. Partner Hoff & Leigh | 2700 S Broadway #307 | Denver, CO 80113 | 720.572.5187 office www.hoffleigh.com/denver DenverDenver Retail Retail RETAIL MARKET REPORT Market Key Statistics 2 Leasing 4 Rent 9 Construction 11 Under Construction Properties 13 Sales 15 Sales Past 12 Months 17 Economy 19 Market Submarkets 22 Supply & Demand Trends 25 Rent & Vacancy 29 Sale Trends 33 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 OVERVIEWOverview DenverDenver Retail Retail 12 Mo Deliveries in SF 12 Mo Net Absorption in SF Vacancy Rate 12 Mo Rent Growth 1.1 M (939 K) 5.3% 0.6% Denver has reclaimed about half of the jobs lost during even with the growing market share of e-commerce and April shutdowns, according to June data from the Bureau evolving consumer patterns. Store closures largely of Labor Statistics. The nonfarm unemployment rate contributed to absorption turning negative last year, compressed below 10%, outperforming the national including another Safeway shuttering, but well-located average. At the start of 2020, Denver's unemployment assets continued to perform well. rate was below 3%, making it one of the tightest job markets in the country. Trade area demographics were buttressing strong consumer demand as the metro has experienced robust Leisure and hospitality still weighed on the labor market growth in population, employment, and buying power this as employment in the sector was down 20% from the cycle. These factors, coupled with limited new supply, same point last year. Other services, which includes resulted in Denver outperforming nearly all major metros many jobs tied to retail, were down about 14%. Work- in the change of buying power per SF since 2010. from-home industries continue to weather the storm relatively well. Information jobs were up 1% annually, Although leading retail indicators have been encouraging and professional and business services was only down this cycle, development activity has been rather minimal. about 1.5%. Denver's retail stock has only grown by about 5.5% cumulatively since 2010—near the national average The economic impact of the pandemic and shelter-in- despite far superior demographic trends. But developers place orders in April dwarfed that of the Great Financial appear to have made the right call to step on the brakes Crisis, which spanned several years. From 2008-09, in recent quarters as the national economy, as well as Denver lost about 67,000 jobs, or about 100,000 fewer Denver, encounter the growing likelihood of a recession. than reported last month. Until 2019, retail rents in Denver were growing by about The last time oil prices fell this low in 2016, the local 5% annually on average since 2016. Following the economy felt the impact. An oil price war between Saudi national trend, rent growth has noticeably cooled from Arabia and Russia caused prices to plummet to $20 a growth rates observed earlier in the cycle. With non- barrel in March. The fallout of the demand shock caused essential retail virtually shut down throughout the state, by the coronavirus led to oil prices hitting all-time lows in rents will likely face tremendous downward pressure in April, even after the U.S. and Mexico agreed to cut oil the near term. production along with OPEC+. Oil markets rebounded in May, hovering around $30 per barrel. Investment activity is expected to slow to a crawl in the coming quarters due to the financial uncertainty of the Denver's retail market was on solid footing entering economy coming to a hard stop. 2020, as vacancies were trending near historical lows 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 Page 2 OVERVIEWOverview DenverDenver Retail Retail KEY INDICATORS Net Absorption Under Current Quarter RBA Vacancy Rate Market Rent Availability Rate Deliveries SF SF Construction Malls 16,763,810 3.8% $32.42 3.9% 79,161 0 12,000 Power Center 15,723,041 8.2% $24.45 9.3% (80,798) 0 7,500 Neighborhood Center 50,381,001 7.5% $21.17 9.2% 2,906 0 41,262 Strip Center 7,969,695 6.2% $20.51 7.9% (3,943) 0 15,000 General Retail 65,477,216 3.2% $21.85 4.7% 10,362 50,000 437,968 Other 1,321,183 0.3% $21.46 0.2% 0 0 0 Market 157,635,946 5.3% $22.94 6.6% 7,688 50,000 513,730 Historical Forecast Annual Trends 12 Month Peak When Trough When Average Average Vacancy Change (YOY) 1.1% 6.2% 6.3% 8.7% 2009 Q3 3.8% 2018 Q4 Net Absorption SF (939 K) 1,591,018 116,896 4,698,949 2007 Q2 (957,520) 2020 Q3 Deliveries SF 1.1 M 1,751,811 1,034,325 5,081,730 2006 Q4 646,954 2010 Q4 Rent Growth 0.6% 1.9% 0.9% 5.8% 2014 Q4 -2.9% 2009 Q4 Sales Volume $946 M $968.6M N/A $1.7B 2018 Q2 $335.4M 2010 Q3 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 Page 3 LEASINGLeasing DenverDenver Retail Retail Retail has been one of the hardest-hit job sectors in fitness centers: Vasa Fitness (56,000 SF), Chuze Fitness Denver, and uncertainty looms for the market as retailers (50,000 SF & 40,000 SF), and Prestige Fitness (38,000 attempt to survive the pandemic. SF). Vacancies that peaked at 9% during the downturn were As malls attempt to generate more foot traffic, they have near historical lows entering 2020. However, the focused on experiential retail to draw consumers in. coronavirus shock to the retail market resulted in the Urban Air, a trampoline park for children, is shuttering of all non-essential stores for an extended representative of this emerging trend. In early 2019, the period of time. Lost revenue in the coming months could company opened a 36,000 SF location at Towne Center force many tenants to permanently close their doors, at Brookhill in Westminster. By the summer of 2020, unless both tenants, landlords, and lenders can get Urban Air will open a 50,000 SF location at the creative during this crisis. Cornerstar shopping center in Aurora. With retail inventory nearly at full capacity at the start of Limited new retail developments, coupled with a growing 2019, the vacancy rate expanded slightly during the year and highly educated, high-income population with a following a string of store closures. These closings were large concentration of “big spenders” (the demographic largely a result of unprofitable national retailers that failed aged 35–54 years), should continue to provide the retail to evolve in the digital age rather than a perceived sector with a much needed lift in the face of e- weakness in Denver as a consumer market. commerce driven headwinds. Sears was behind most of 2019's negative absorption. Vacancies are concentrated in bad retail centers and The 125-year-old retailer filed for bankruptcy at the end have not spread into the average retail center. Moreover, of 2019 and closed two stores in early 2019: a 150,000 a concerted movement of households, wealth, and SF location in Lakewood, and a 130,000 SF Sears at the employment to downtown submarkets have produced Streets at SouthGlenn. Both spaces were still on the routinely above-average rent gains in the Downtown and market at the start of 20Q1. Cherry Creek Submarkets, and vacancies in these areas have been razor thin for years. Centers and mixed-use Safeway continued to plague the market after years of developments with retail components in these rapidly store closures throughout the state of Colorado. The growing neighborhoods are thriving. grocery chain shuttered another big box location in 2019—54,000 SF at Westminster Plaza in Westminster. In other cases, retail in bad trade areas has often been removed from inventory or is undergoing renovations and A Kmart and several Toys "R" Us locations have also in some cases, repurposing. With stronger demand closed in recent years. drivers to weather the new age of retail, and supply that has only mirrored the national average despite superior The top leases and move-ins of 2019 reflect the ongoing demographic and economic trends, the Denver retail shift in consumer trends and where tenant demand is the market has enjoyed an atypical amount of resilience to strongest. Four of the top seven move-ins belonged to the effects of e-commerce. 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 Page 4 LEASINGLeasing DenverDenver Retail Retail NET ABSORPTION, NET DELIVERIES & VACANCY VACANCY RATE 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 Page 5 LEASINGLeasing DenverDenver Retail Retail AVAILABILITY RATE 10/12/2020 Copyrighted report licensed to Hoff & Leigh, Inc. - 689708 Page 6 LEASINGLeasing DenverDenver Retail Retail 12 MONTH NET ABSORPTION SF IN SELECTED BUILDINGS Net Absorption SF Building Name/Address Submarket Bldg SF Vacant SF 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 12 Month 3235 Larimer St Central Ret 200,000 3,503 190,800 5,697 0 0 196,497 Market Station Downtown Ret 88,500 0 0 0 88,500 0 88,500 Defy Denver Aurora Ret 104,400 0 60,000 0 0 0 60,000 Candelas Marketplace Northwest Ret 140,000 0 43,560 12,000 0 0 55,560 AMC Central Ret 44,000 0 44,000 0 0 0 44,000 Promenade at Castle Rock Southeast Outlying Ret 43,000 0 0 43,000 0 0 43,000 Alpine Buick GMC South Ret 41,000 0 0 0 41,000 0 41,000 South Lowry Marketplace Central Ret 95,763 6,756 0 (1,680) 2,678 0 33,923 9th & Colorado Central Ret 34,500 0 0 0 0 0 29,999 13750 Grant St Northeast Ret 38,000 8,500 0 0 0 29,500
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