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FEBRUARY 2020 | ISSUE XIV
THE WHEELHOUSE REPORT
In-depth market information on Denver’s commercial real estate market.
In This Issue
FEATURE ARTICLE
The Metamorphosis of
the Shopping Mall
MARKET REPORT
Retail Market
Analysis, Q4 2019
ASK AN EXPERT
Property Tax Increases
for Colorado Retail
The Wheelhouse Report is
The Metamorphosis of the Shopping Mall produced by Wheelhouse
Commercial, a full-service
By Andrea Ackerman, Business Development Manager commercial property
management company
headquartered in
Since the first shopping mall opened in 1954 in Detroit, Michigan, the
Denver, Colorado.
U.S. has seen an exponential increase in the number of malls. Over the
years, as consumer buying trends have changed, malls have undergone an Each month we bring you
impressive metamorphosis themselves. Nationwide, creative developers, in-depth market news and
often in partnership with local governments, are transforming older malls data on all segments of
into vibrant, new communities with unique neighborhood focal points. Denver’s commercial real
And Colorado has been at the forefront of this trend. estate market.
THE BIRTH OF THE MALL
In the early 1950s, Austrian architect Victor Gruen conceptualized the
modern “shopping mall.” While in Detroit, Michigan due to a canceled
flight, Gruen decided to visit Detroit’s landmark Hudson’s Department
Store. During his visit he came to the realization that despite the store itself
being quite nice, it was located in a deteriorating section of downtown. Run- 574 Santa Fe Dr, Suite 300
down city centers were a common occurrence across the country after the Denver, CO 80204
303.518.7406
wheelhousecommercial.com
FEATURE ARTICLE
The Metamorphosis of the Shopping Mall (from previous page)
Great Depression and WWII, as veterans could such as transportation, accessibility, and nearby
purchase housing outside of the city center, for residential neighborhoods, today these malls are
no money down. The transformative American located on prime real estate.
suburban migration had begun.
TRANSFORMATION ACROSS THE NATION
Gruen reached out to Hudson’s leadership and Innovative and responsive developers and
explained that their customers were moving business owners are observing these trends and
outside the city and so should they. He urged making moves. Nationwide, shopping malls have
Hudson’s to embark on the creation of a suburban been repurposed into a variety of different uses,
commercial development. This would allow them and the options seem endless.
to be their own landlord, thereby also diversifying
their business by becoming real estate developers As an example, big companies like Hewlett-
and property managers. Lastly, this would give Packard and Google see these already existing
them the authority to pick and choose other “communities” as opportunities to create
retailers that would complement and enhance campuses and offices for their companies. An
their core business, creating a first-ever synergy iconic mall in Rhode Island has converted their real
among retailers. estate into micro-apartments while also keeping
a mix of local businesses and conveniences such
Gruen’s Northland Mall opened in 1954. It was as salons, coffee shops, restaurants, and other
the first of its kind, and the largest mall that had “lifestyle” businesses. Tennessee transformed
ever been built. It was a tremendous success, and one of their antiquated malls into an education
was the genesis for what has become known as and sports venue; supporting their local hockey
the shopping mall, and created a significant shift team, making space for a community college, and
in consumer shopping habits. adding a public library.
THE 21ST CENTURY MALL PLAGUE Repurposing trends include apartments, business
Beginning around the turn of this century, and conference centers, churches, government
shopping malls across America have been offices, hotels, senior living, medical campuses
increasingly abandoned. These 100-500 acre, and public transportation hubs. Entities that
1-million-square-foot-plus centers are being embody community and convenience have
vacated rapidly, as one retailer after another become the newest tenants.
closes its doors or downsizes dramatically. They
leave behind enormous, desolate buildings in In some cities, one might find that large portions
the center of bustling neighborhoods. As many of a shopping mall converted to appeal to a strong
of the properties are falling into bankruptcy, demographic of a population. One might find a
creative real estate entrepreneurs are finding mixture of ethnic food markets, clothing apparel,
tremendous re-development opportunities. As restaurant equipment, and perhaps event spaces
the locations were originally chosen by indicators to hold cultural parties and gatherings.
THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 2
FEATURE ARTICLE
The Metamorphosis of the Shopping Mall (from previous page)
Another recent trend is the ghost kitchen. This model transforms large, empty spaces into professional,
food preparation facilities providing dining-less restaurants. This allows food concepts to sell their menus,
by delivery only, without having the expense of brick-and-mortar and additional staff.
Simon Properties has taken a vested interest in the tenants in their portfolio. In 2016, Simon and mall
owner General Growth Properties, now owned by Brookfield Property Partners, saved Aeropostale from
bankruptcy. Today, they’re at it again, making an $81 million offer to buy Forever 21. Owners are becoming
players in their own game.
MILE-HIGH TRENDSETTERS
Colorado has been a trendsetter in mall transformations; more than 60% of the malls in the Denver
Metropolitan area have been, or are currently being repositioned.
• Cinderella City Mall, built in 1968, was known as the largest mall west of the Mississippi. In the early
2000s, it was redeveloped and is now called City Center Englewood – a mixed-use development that
has revitalized the area. The 55-acre development includes a light rail station, city government offices,
residential units, retail, a library, and even an art museum.
• The Pavilions was Denver’s first “open air” mall. Gart Properties wisely located it right on the 16th
Street pedestrian mall, in the heart of downtown Denver in 1998.
• Southglenn Mall in Littleton was a typical indoor American shopping mall. In 2005, Alberta Development
partnered with the City of Centennial to create the neighborhood-style Streets at Southglenn.
• Crossroads Mall in Boulder, built in 1963, was another mall hanging on for dear life. In 2004 it closed,
and re-opened as the new 29th Street Retail District, an outdoor shopping neighborhood.
• Villa Italia Mall in Lakewood closed and defaulted to the city in 2001. The resulting redevelopment,
Belmar, is generating four times the tax revenue of the old mall. Belmar’s open-air residential and
shopping district consists of 900,000 sf of retail over 22 walkable city blocks and is 95% occupied.
• Westminster Mall is currently in redevelopment. The city purchased the site and is acting as the
“horizontal developer,” selling individual parcels to developers who are implementing the vertical
construction.
SOARING TO NEW HEIGHTS
The use and intention of traditional shopping malls has shifted. Historically, they held clothing, apparel,
and other retail choices. Today, mall owners are repositioning their assets to go far beyond retail, and
adjusting to the needs of the community. By providing a welcoming new mix of uses, malls are producing
a cultural win, and re-establishing a significant source of tax revenue.
THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 3
MARKET REPORT THE
THEWHEELHOUSE
WHEELHOUSEREPORT:
REPORT:July
July2019
2019
Retail Market Analysis: Denver Metro Q4 2019
Wheelhouse Commercial has compiled and analyzed the most recent retail market data from the last
quarter. The table below reports some of the key market indicators from 11 submarkets across the
greater Denver retail market, during Q4 2019.
RETAIL MARKET DATA: DENVER METRO Q4 2019*
VACANCY AVAILABILITY MARKET ANNUAL INVENTORY 12-MONTH UNDER CONSTR. UNDER CONSTR. 12-MONTH NET
SUBMARKET
RATE RATE RENT/SF RENT GROWTH SF DELIVERED SF SF % OF INVENTORY ABSORPTION SF
Overall Denver 4.6% 5.8% $22.96 2.1% 155M 825K 1.1M 0.7% -322K
West 5.1% 6.6% $20.32 2.4% 24,072,417 43,878 53,812 0.2% -97,740
Central 3.1% 4.6% $23.04 2.6% 21,132,203 131,083 130,946 0.6% -29,088
Northwest 5.9% 6.7% $20.71 2.0% 24,718,505 157,040 105,854 0.4% -202,515
South 4.6% 5.6% $28.22 1.5% 18,326,781 63,097 97,136 0.5% 10,660
Southeast 4.8% 4.9% $25.16 2.2% 15,361,520 114,102 42,345 0.3% -88,904
Northeast 5.0% 6.4% $21.18 2.3% 15,149,389 78,182 321,935 2.1% 148,298
Aurora 5.6% 5.7% $16.95 2.4% 12,148,974 108,471 93,350 0.8% -32,670
Southwest 3.5% 5.9% $20.57 2.2% 10,348,186 100,263 7,740 0.1% 120,887
Colorado Bl/
4.7% 5.2% $42.52 1.2% 5,143,741 6,555 0 0.0% -105,631
Cherry Ck
Downtown 3.0% 8.4% $31.73 1.0% 3,444,550 0 206,240 6.0% -75,226
Southwest
2.8% 5.4% $17.22 2.1% 1,257,082 0 0 0.0% 9,880
Outlying
* Source: CoStar. The information contained in this newsletter is obtained from sources deemed reliable; however, Wheelhouse Commercial cannot guarantee the accuracy of the information provided.
THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 4
MARKET REPORT Retail Market Analysis: Denver Metro Q4 2019 (from previous page) MARKET RENTS Retail rents began to moderate in 2019, with annual rent growth falling below 1% for the first time since 2011. However, considering that Denver experienced a six-year run of 5% annual rent growth this is not unexpected. And, all of the submarkets that we track regularly in this report, which constitute the core of the Denver metro area, saw at least 1% growth and some submarkets still clocking in at over 2% rent growth in 2019. It seems we have reached a level of stability which is forecast to remain the same for the foreseeable future. THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 5
MARKET REPORT Retail Market Analysis: Denver Metro Q4 2019 (from previous page) VACANCY The Denver market retail vacancy rate stands at 4.6%, which is up slightly since the third quarter of 2019. However, Denver remains one of the strongest retail markets in the nation. Denver did see an overall negative net absorption in 2019, which was primarily due to large box retailers shuttering (Safeway, Kmart, Sears) and little new development under construction in this cycle. With the headwinds caused by online shopping, developers have been very hesitant to embark on new projects, which is probably prudent; but our strong economy and demographics have balanced out the negative effects that e-commerce has had on brick-and-mortar retail in other markets. As with rent growth, the forecast is to now enter into a leveling-off period, with vacancy rates trending only slightly up or down, depending on the type of retail (mall, neighborhood center, strip center, etc.) THE WHEELHOUSE REPORT | FEBRUARY 2020 PAGE 6
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Property Tax Increases for Colorado Retail a tradition of excellence
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Q: My Colorado retail building’s property taxes went up quite bit this
leasing and construction.
year. Will this happen again in two years?
A: Most likely yes. The County Assessor uses the comparable sales method • Wheelhouse Commercial
to determine a building’s value. With the Denver real estate market still red- • Wheelhouse Construction
• Wheelhouse Apartments
hot, properties keep trading higher and higher (appreciating). These most
• Boutique Apartments
recent sales prices will be used during the next assessment, which begins in
the summer of 2020.
If you have a burning question or concern about commercial property
management, drop us a line. We’ll feature one question from our readership
in our newsletter. Send your questions to info@wheelhousecommercial.com.
574 Santa Fe Dr, Suite 300
Denver, CO 80204
303.518.7406
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