Retail vacancy rate was at lowest point in almost two decades in the second quarter, according to CBRE Research
The Sports Authority location at Bowles Crossing Shopping Center in Jefferson County is a 78,000 square foot space and was photographed on Tuesday, May 31, 2016 .
Prime retail space continues to be a hot commodity in metro Denver, although Sports Authority’s looming dissolution will have at least a temporary impact on market conditions in the coming months.
The Denver metro retail market posted its lowest vacancy rate in nearly two decades in the second quarter — 5.6 percent — according to a report released Monday by CBRE Research. The last time the market was this tight was 1998.
At the same time, average asking lease rates fell to $16.77 per square foot triple net, down 3.4 percent year over year, a result of the dearth of premium, higher-cost space available for lease, said Jessica Ostermick, CBRE director of research and analysis.
“Demand is strong,” Ostermick said. “I still think we’ll see several quarters of retail lease growth.”
Once Sports Authority goes dark, though, a temporary increase in the vacancy rate is likely as hundreds of thousands of square feet in big-box retail space become available, said Jon Weisiger, senior vice president of CBRE Retail Services.
Only two of the bankrupt retailer’s Denver leases — prime locations on Colorado Boulevard in Glendale and at Colorado Mills in Lakewood totaling about 88,600 square feet — received bids at auction, both from Dick’s Sporting Goods. Before Sports Authority filed for bankruptcy protection this year, the Englewood-based chain had 31 stores in Colorado.
“We are seeing across a number of the Sports Authority spaces strong interest from concepts that really want to expand their format and have been locked out of certain markets — Park Meadows, really across all the trade areas,” Weisiger said. “I don’t anticipate those boxes to linger in the market. Typically they are in major retailcorridors, primary retail corridors where the demand is high.”
Overall, the Denver commercial real estate market remains on solid footing halfway through 2016, Ostermick said.
On the office side, asking lease rates hit a record $25.23 per square foot full service gross, up 4.5 percent year over year, according to CBRE Research. Direct vacancy also ticked down to 11.9 percent, its lowest level since 2000.
But while net absorption was positive for the quarter, sublease availability increased to more than 2.5 million square feet — 1.1 million of it downtown, mostly related to contraction in the oil and gas industry.
The Denver office market may be reaching its peak, particularly downtown, said Sam DePizzol, senior vice president of CBRE Advisory & Transaction Services.
Including sublease space, the total availability rate downtown is 21 percent — and that’s before you factor in the nearly 1.8 million square feet of new office space still under construction, he said.
“We’ve had this great run in Denver where we’ve seen rates go up, investment activity doing great, absorption’s been good,” DePizzol said. “It’s been quite a long run — 18 of the last 19 quarters with positive absorption — but I think we’re at the top.”
Industrial lease rates stabilized in the second quarter, falling a penny from their all-time high last quarter to $7.28 per square foot triple net. Direct vacancy crept slightly to 4.8 percent, up from 4.7 percent during the first three months of the year.
It’s too early to draw conclusions from either of those metrics, said Jim Bolt, executive vice president of CBRE Industrial & Logistics. A 5 percent vacancy rate, plus or minus a few points, is “a market in equilibrium,” he said.
“Anecdotally, there are areas of our market that there’s quite a bit of space being built,” Bolt said. “Lease rates haven’t stagnated. We’re just not seeing the acceleration of growth of lease rates like we once were.”
Investment activity is picking up, Bolt said. During the second quarter, $239.5 million in industrial property traded hands, with investment sales averaging $109.30 per square foot year to date, up $36.90 from the same time last year.
“Construction costs have risen so much that even at $150 per square foot rough number, oftentimes that’s below replacement cost still,” Bolt said.