Colorado-Real-Estate-Journal_416338

Market factors poised to drive retail sales in Colo. INSIDE Essential services, community connection, operational flexibility ensure relevance Unanchored resilience Retail will likely move up a notch on lender lists of preferred property types Holding steady PAGE 13 August 2024 PAGE 6 T he retail real estate market in the U.S., and specifically in Colorado, is experiencing a scarcity of new construc- tion that is shaping the industry in 2024. With limited new construction and the demolition of existing retail space, the supply of retail properties is declining. In the first quarter of 2024, the U.S. saw a decrease of 27.4% in net deliver- ies of new retail space compared to first-quarter 2019, amounting to 9.5 million square feet. Addition- ally, over the past year, more than 12 million sf of retail space was demolished, with a total of 155 mil- lion sf removed over the past five years. Denver, too, faces a scarcity of retail space. Only 310,000 sf is cur- rently under construction in the Denver metro area, representing a mere 0.2% of the total inventory. Over the last decade, Denver’s retail inventory has grown by a mere 4.6%, significantly lagging the popu- lation growth of over 12%. With over 2 million sf of retail space demol- ished in the past five years, new supply is limited. Only 8% of the space currently under construction in Denver is available for lease due to preleasing, indicating that the supply-demand imbalance is here to stay. Despite the scarcity of available retail space, there remains a strong demand for retail properties. The leasing rate over the past year has surpassed the previous year, sig- naling robust demand. There is a particularly noticeable preference for smaller spaces, below 2,500 sf, driven by the rise of quick-service and fast-casual restaurants. This surge in demand for convenience strip center prop- erties has created unprecedented investor interest. However, the retail transaction volume in recent years has been historically low, largely due to high debt costs and uncertainty surrounding monetary policy. Nonetheless, there is evi- dence of a changing trend. CoStar predicts that the retail investment market will reach transaction vol- umes of nearly $20 billion by mid- year 2024, comparable to levels seen in 2013. Notably, smaller deals under $5 million, have decreased by 61% compared to their peak in 2021, totaling $8.6 billion in the first quarter of 2024. Transactions rang- ing from $5 million to $25 million have dropped by 71% to $4.9 billion, and those exceeding $25 million have fallen by 78% to $1.5 billion during the same period. Like national trends, retail invest- ment volume in Denver hit $834 million over the past year, the low- est annual figure since 2011 and lower than the 10-year average of $1.3 billion. After reaching a record high in the fourth quarter of 2021, the quarterly investment volume sharply declined throughout 2022, eventually stabilizing at around $200 million per quarter since early 2023. With the prevailing high-inter- est rate environment, small private investors have emerged as the pri- mary buyers of retail properties in Please see Schmidt, Page 20 Jason Schmidt Managing director, JLL Capital Markets The right tenant blend is crucial to getting the retail component just right Just the right mix PAGE 10 Austin Snedden Director, JLL Capital Markets CoStar