Everything is looking up for the Denver retail real estate market. The average direct asking lease rate according to CoStar is at a record high of $19.60 per square foot and positive net absorption is up for the fourth consecutive quarter in a row at 396,224 square feet (up 6.9% quarter-over-quarter). Retail rents have grown by an average of just over 5% annually over the past five years, which has ranked as the best performance out of the 50 largest metros nationally. Furthermore, vacancy has continuously fallen to its lowest point in 15 years to 4.4 percent. The majority of vacant spaces are located in less desirable retail centers and rarely spread to the average and luxury retail centers such as Downtown or Cherry Creek whose vacancy rates have been infinitesimal for years.
As a result, total availability has dropped to 8.2% and construction levels remain high with 1.2 million square feet of space under development. Among some of these projects include the 235,000 square foot mixed use development at 9th and Colorado and the Base Camp at Market Station, which will deliver 88,500 square feet. Additionally, a group of developers, led by The Rockies organization, is responsible for 75,000 square feet of retail in a mixed-use development including components of retail, office and residential across the street from Coors Field. During Q1 of 2019, a retail space of 139,000 was completed and The Hub, an office building in the Central submarket, which includes 31,800 square feet of retail space.
Land and development opportunities are scarce and expensive in areas with strong rent growth such as Cherry Creek and Downtown Denver. This proves to be true specifically for retail developers who are contending against multifamily developers who are known to pay more for land than any other type of property developer. Denver has seen a rush of multifamily development from regional and national developers in the market, which has driven prices even higher.
With numbers this good, Metro Denver is also seeing continued, though moderate, employment growth bringing the unemployment rate in Metro Denver to 3.3% in February. This rate could be part of the reason that Denver was ranked the #6 best city for job seekers according to ZipRecruiter. A decreasing unemployment rate in Metro Denver is a great sign considering that the unemployment rate for the State of Colorado has risen by .5% to 3.7% in February. A possible cause for the rise in unemployment is the government shut down that occurred at the beginning of the year as well as the long winter that Colorado has had this year.
The Conference Board states that confidence has been diminishing over the past few months prompted by the fluctuating financial markets, the government shutdown and a poor February job reports. Regardless, consumers remain hopeful that the economy will bounce back in the forthcoming quarter. Additionally, the retail sector will be supported by increasing buyer power through a high-income population with a large concentration of “big spenders” (ages 35-54) combatting the heavy stride of e-commerce.
2017 saw a national decrease in sales volume for all property types, but the decline in retail was the most significant roughly down 20% compared to the prior year. Nonetheless, investors are recognizing the health of the Denver retail market as well with 19 retail properties selling for $113.9 million. Though this is a decrease in sales since Q1 of 2018, the average price per square foot in Q1 of 2019 was $202.79, which was up 12.6% year-over-year. These calculations do not include the $30.2 million dollars invested in buildings that sold for below $3 million. For properties that were priced between $1 million and $3 million, their average price per square foot was even higher at $318.36.
With numbers this good, Metro Denver is also seeing continued, though moderate, employment growth bringing the unemployment rate in Metro Denver to 3.3% in February. This rate could be part of the reason that Denver was ranked the #6 best city for job seekers according to ZipRecruiter. A decreasing unemployment rate in Metro Denver is a great sign considering that the unemployment rate for the State of Colorado has risen by .5% to 3.7% in February. A possible cause for the rise in unemployment is the government shut down that occurred at the beginning of the year as well as the unusual winter that Colorado had. The Conference Board states that confidence has been diminishing over the past few months prompted by the fluctuating financial markets, the government shutdown and poor February job reports. Regardless, consumers remain hopeful that the economy will bounce back in the forthcoming quarter.
Investors are recognizing the health of the Denver retail market as well with 19 retail properties selling for $113.9 million. Though this is a decrease in sales since Q1 of 2018, the average price per square foot in Q1 of 2019 was $202.79 which was up 12.6% year-over-year. These calculations do not include the $30.2 million dollars invested in building that were sold for below $3 million. For properties that were priced between $1 million and $3 million, their average price per square foot was even higher at $318.36.