Colorado-Real-Estate-Journal_476910

INSIDE Recent legislation reinstates 100% bonus depreciation for qualifying assets Bonus depreciation In retail renovation, the biggest challenge is keeping tenants open, busy and content Value-add PAGE 14 August 2025 PAGE 8 Ground-up development: How a beer gar- den became a tribute and a community hub Building community PAGE 13 A s we move into the back half of 2025, shopping cen- ters remain one of com- mercial real estate’s favored asset classes. Cheap debt, questionable investments decisions, and an abundance of capital led to overbuilding in many sectors after the pandemic. Retail development, however, has remained at a frac- tion of the level seen before the Great Financial Crisis. More than a decade of limited construction has kept supply of viable retail vacancy at historic lows, leading to upward pressure on achievable rents. The sky rocketing cost of living in the Denver metro area has led to an exodus of residents to second- ary and tertiary markets such as Colorado Springs, Northern Colo- rado and the Western Slope. These areas are experiencing growth that has rapidly outpaced the Denver metro area, in addition many of these markets face natural develop- ment constraints with respect to the development of shopping cen- ters. This has created an even more pronounced scarcity premium in markets once considered inferior to the metro Denver area. n Unanchored neighborhood retail: Demand all-time high. Neighbor- hood centers without grocery anchors are now among the most sought-after retail investments. Once overlooked, these “unanchored” or “shadow- anchored” cen- ters typically sell at less than half the cost of new construction (new builds average around $450 per square foot) and are often located at high visibility corners or along busy corridors. Investors value them because the tenant mix – daily needs, service and quick-service restaurants occupying 1,000-3,000 sf – drives consistent traffic and can be easily backfilled. These tenants have gen- erally performed well since the pan- demic and require far smaller ten- ant improvement allowances than national retailers (see Discount to Development Cost). In general, small-format retailers only require a fraction of what has become standard when negotiating with larger credit/national retail- ers. At ICSC this last May, we heard from several clients who were attempting to negotiate with a well- known national credit, retailer. The retailer was requesting landlord work/TI allowance between $150- $200 per sf, while offering $20 per sf in rent. Tough for most owners to make those numbers pencil. n Projected rent growth due to long- constrained new supply. The case for investing in retail for institutional investors and larger funds has been fueled by a marketwide anticipation that there will be significant growth in retail rents over the next decade. Before there can be a significant level of new retail development, much less be “overbuilt” as it was 20 years ago, rents on existing retail assets will need to increase signifi- cantly. According to Green Street, new supply of strip centers has averaged just 0.3% of total inventory per year since 2022 – a far cry from the 2.5% annual growth rates seen pre-GFC. Development simply doesn’t pencil in today’s environment. In the Den- ver metro area specifically, rents would need to increase by an esti- mated 80% before significant new development becomes financially viable (see Rent Percentage Increase Needed to Make Developments Pen- cil). This persistent supply shortage is a critical reason why national funds and institutions continue to target strip centers and other retail formats: they’re not just buying income – they’re buying scarcity. With limited future competition and high barriers to entry, these assets are poised to benefit from ongoing rent growth, low vacancy and long-term tenant retention. n Secondary and tertiary markets: Colorado’s growth corridors. As pric- ing pressures in Denver continue to A shift in focus: Where investors are placing bets Ryan Bowlby Managing director, investments, Institutional Property Advisors, Marcus & Millichap Please see Bowlby, Page 15