Colorado-Real-Estate-Journal_476911

Page 6 — Retail Properties Quarterly — August 2025 www.crej.com At Evergreen, trusted partnerships and strategic relationships enable us to adapt to market changes and seize new opportunities. Our diverse portfolio includes premier Retail, Multifamily, and Industrial properties, all developed with a commitment to excellence. Join us in shaping the future of real estate. Evergreen - Celebrating 50 Years of Excellence Of ces in Phoenix | Los Angeles | Denver | Salt Lake City www.evgre.com FOR MORE INFORMATION CONTACT RETAIL OPPORTUNITIES : Heather Wiseman | hwiseman@evgre.com | 303.656.8713 MULTIFAMILY OPPORTUNITIES : Jeff Wikstrom | jwikstrom@evgre.com | 602.808.8600 INDUSTRIAL OPPORTUNITIES: Brian Dietz | bdietz@evgre.com | 602.808.8600 ERIE, COLORADO MIXED-USE DEVELOPMENT ERIE, COLORADO | OUTLOOK NINE MILE APARTMENTS 287 UNITS COMMERCE CITY, COLORADO 59,000 SF | 6.9 ACRES T he Colorado retail investment landscape is undergoing a significant transformation as shopping center owners across the state confront a growing inventory of vacant big-box spaces. Colorado’s retail vacancy rate has climbed to 6.8% as of the first quar- ter, with big-box spaces experiencing notably higher vacancy rates than the overall retail average, according to CoStar data. For the first time in 16 quarters, retail absorption turned negative, pri- marily due to closures from retailers like Big Lots and Party City. Large-for- mat retail spaces above 50,000 square feet are also particularly vulnerable in today’s market. While Colorado’s overall retail fundamentals remain stronger than the national average, these oversized spaces present unique challenges that are affecting valuation metrics of retail assets. Shopping cen- ters with vacant anchors are seeing their cap rates increase by 40-60 basis points compared to fully occupied centers in the same submarkets. This valuation gap reflects both the imme- diate income loss and the substantial capital requirements for successfully repositioning displaced larger retail spaces. The investment community has developed a more sophisticated approach to evaluating big-box risk. Centers with vacant or at-risk anchors are trading at 15%-25% discounts compared to stabilized assets, creating a clear bifurcation in the investment market from stabilized or smaller for- mat convenience retail assets. n Investment market response. Investment sales volume for Colorado shopping centers with anchor tenants declined 18% year over year in the first quarter, according to Real Capital Analytics, while centers anchored by grocery or neces- sity-based retailers saw transaction volume increase by 12% during the same period. The impact is largely due to the number of buyers willing to acquire larger format retail centers. Institu- tional capital has become increasingly more selective. REITs and pension fund advisers are largely focused on grocery-anchored assets that have minimal big-box exposure, leaving value-add opportunities to entrepre- neurial local and regional investors. This flight to quality has com- pressed cap rates for premier retail assets. Top-tier grocery-anchored centers in the Denver metro area are trading at cap rates averaging 5.3%- 5.7%, approximately 75 basis points below 2023 levels despite the higher interest rate environment. n Successful repositioning strategies. With previously announced closures beginning to take effect from retailers like Party City, Advance Auto Parts, Big Lots and Walgreens, millions of square feet of retail space will return to the market, providing much-needed space to retailers looking to expand. The experiential retail model con- tinues gaining traction. Centers incor- porating substantial entertainment components have seen 16% higher foot traffic and 12% longer average visit durations compared to tradi- tional retail-only centers. Many vacant big boxes are seeing interest from ten- ants such as Pickleball and minigolf concepts. The “retail eco- system” model that subdivides large spaces into complementary smaller tenants has proven highly effective. Analysis of subdivided big-box spaces across West- ern states found that this approach generated 18%-24% higher total rental revenue while reducing re-tenanting risk through diversification. Medical conversion has demon- strated particular value. Medical users typically pay 25%-40% premium over traditional retail rates for well-located former retail spaces. Recent conver- sions across Colorado have secured average lease terms of 12.7 years com- pared to 7.3 years for traditional retail tenants. n Geographic considerations. The market reveals stark geographic dis- parities in Colorado’s retail landscape. While the Denver-Boulder metro area maintains retail vacancy rates of 5.2%, secondary markets like Grand Junc- tion (9.8%) and Pueblo (10.4%) face sig- nificantly higher vacancy challenges, particularly in big-box formats. Addi- tionally, the suburbs continue to flour- ish with stronger leasing momentum compared to downtown pockets. Location factors are increasingly determinative in backfill timelines. Vacant big boxes in prime Denver submarkets typically remain dark for seven to 11 months before securing replacement tenants, compared to 22-plus months in secondary markets. This geographic disparity is reflected in rental rates as well. Asking rates for retail space in prime Denver corridors average $32.75 sf foot triple net, while secondary market rates average $18.20 per sf triple, creating substantial chal- lenges for recouping tenant improve- ment costs in less dense markets. n Looking forward. As Colorado shopping center investors navigate the remainder of 2025, economic fun- damentals provide reason for cautious optimism. The state’s population grew 1.3% in 2024, according to the Colora- do State Demography Office, substan- tially outpacing the national average of 0.5%. The Denver metro area added approximately 38,000 new residents, creating demand for retail services particularly in rapidly expanding sub- urban communities. Employment figures also support retail fundamentals. Colorado’s unem- ployment rate stands at 3.8% as of May, below the national average of 4.2%, according to the Bureau of Labor Statistics. Colorado’s strong demographic trends continue supporting retail demand, but success in today’s mar- ket requires anticipating retail evolu- tion rather than reacting to it. The shopping centers achieving premium valuations today are those that proac- tively address potential big-box vacan- cies before they materialize, rather than waiting for spaces to go dark. The current environment presents both challenges and opportunities for shopping center investors. Those with the capital resources and expertise to reimagine obsolete retail formats are finding attractive risk-adjusted returns, while others focus on neces- sity-based retail models with minimal big-box exposure. s Jason.Schmidt@jll.com Austin.Snedden@jll.com Colo. centers navigate big-box vacancy challenges Jason Schmidt Managing director, JLL Capital Markets Austin Snedden Director, JLL Capital Markets