The retail real estate market in Denver fared well in 2018. The strong demographics in the Denver metro area and the lack of new supply supported by a strong foundation in population growth and a strong labor market made it a great year for retailers and retail real estate. A recent report from CoStar revealed that there was 7.5 million square feet of new retail real estate construction since 2012, but almost 2.5 million square feet was demolished or repositioned for other commercial real estate uses. These factors have pushed vacancy rates down to the low 4 percent range in the early stages of 2019, which is the lowest in 15 years according to CoStar.

Denver retail rental rates have increased at least 4% since the second quarter of 2014 and 5% every year over the last 5-years. Downtown Denver rents have skyrocketed 50% since the last real estate cycle. The suburban retail markets have experienced strong growth as well. The financial crisis pushed vacancy rates up to 9 percent, but at the end of 2018 vacancy rates fell to around 4.5 percent.

Denver Premium Outlets opened in the third quarter of 2018 with 330,000 square feet of outlet stores in Thornton to add to the retail real estate inventory. One interesting fact that the report revealed was that there are no other “mall-style” developments in the Denver metro area. Given that there are very few new retail developments coming to Denver and the metro area, as well as the growing population with disposable income, retailers should fare well in 2019.

The suburban markets have seen an increase in rental rates since 2016. Following the financial crisis, the suburban markets lagged the metro area and saw extended periods of high vacancy. The CoStar report stated, “The Southwest Plaza Mall in Littleton is a prime example of the broader improvement in suburban retail. The 550,000 SF main building of the mall was more than 20% vacant for each of the five years leading up to its 2015 renovation.” After the renovations were completed in 2015, the mall has now sub 10 percent vacancy. Below is a graph with a break down of rents for each submarket.


As people and families continue to live or move closer to downtown, submarkets like Cherry Creek and LoDo have seen very low vacancy rates and increased rental rates. For example, the retail space at the Saint Paul Collection apartments was scooped up by Soul Cycle and CB2. The Denver retail market has been resilient given the onslaught of Amazon and other e-commerce businesses. It will be fascinating to see how retailers continue to innovate to capture the eye balls and wallets of the Denver consumer. 

Denver metro area retail rents averaged over 5 percent gain from 2013-17, which was the highest out of 50 of the largest metropolitan cities in the US. The strong demand for retail space has pushed the vacancy rate down to the low 4 percent range in the beginning of 2019. These factors should give retail real estate landlords with property in desirable Denver neighborhoods the upper hand. 

With Downtown Denver rents up 50 percent compared to the peak of the last cycle, investors will be on the prowl. Two of the other best submarkets are the Cherry Creek/Colorado Boulevard and the South submarket, which saw rents increase 40 percent in the Cherry Creek/Colorado Blvd market and 32 percent in the South submarket compared to the peak of the last cycle. A couple of notable transactions that helped drive these retail market fundamentals Downtown were the opening of the Dairy Block and Target opening 30,000 square feet at the 16th Street Mall, according to the Denver Business Journal. Amazon also opened a retail store called Amazon 4-star store in Lone Tree. A recent Denver Post article posted asking lease rates “hit a record” with asking rates at $19.34 per square foot. Below is a graph from CoStar on retail rates broken down by category.

Retail real estate sales were very strong in 2018. The number of deals and the sales volume were among the best since the financial crisis. Cap rates have continued to be stagnant and were down 10 basis points over the last 2 years. Since the fourth quarter of 2016, cap rates have fallen 90 basis points. Cap rates will likely inch up over the next couple of years according to CoStar’s projections. 

One noteworthy sale was a 918,000 square foot slice of The Southlands in Aurora for $142 million. The buyer was a joint venture between M & J Wilkow and MetLife. Another recent significant sale was the Lifetime Fitness in Centennial for just over $32 million. The Bed Bath & Beyond and Petsmart in Cherry Creek also traded hands for $30 million, a 6.7 cap rate. Below is a graph from CoStar on sales volume and market sale price per square foot and their forecast.

The Denver retail market was resilient to the headwinds of the e-commerce explosion and national retailers shuttering their doors for the last time in 2018. Landlords will have to continue to innovate their shopping centers and big box retail spaces with medical and other uses to entice consumers into shopping centers. Many analysts think that rental rates will level off or rise slightly in 2019. The retail real estate sales market should continue to be strong in 2019 as well. Denver is still one of the hottest cities to live in, which will continue to attract capital, investors, and retailers.

This content is not the product of the National Association of REALTORS®, and may not reflect NAR's viewpoint or position on these topics and NAR does not verify the accuracy of the content.