Market Update – Q1 2023 – Denver Retail

Denver’s retail market has staged a quiet, yet strong comeback, giving the sector runway to withstand a potential slowdown in the year ahead. Contributing to this comeback was the significant lift in consumer spending coming out of the pandemic. Denver’s retailers now have a fresh set of headwinds to contend with in 2023. High inflation, rising consumer debt, and a high interest rate environment are weighing on purchasing power, creating challenges for local retailers. But today’s retail market is entering into this uncertain season from a position of strength.

New leasing activity has remained in line with the long-term average for the past seven quarters. While a handful of retailers in Denver have announced store closures, move-ins are significantly outpacing move outs, and net absorption has remained in positive territory since mid-2021. That has resulted in a year-over-year vacancy change of -0.59% to 3.96%, nearing record lows.

At the same time, Denver’s construction pipeline remains subdued, and the projects that do move forward overwhelmingly consist of freestanding build-to-suits. 

Only 11% of the current construction pipeline is speculative. Denver’s multifamily construction boom is driving the demolition of obsolete retail product across the metro, particularly in dense areas where high land prices justify redevelopment. Retail inventory has grown at the slowest pace of major asset types in Denver, helping to restore balance in the market. 

Tight fundamentals have supported rent growth, and rents are up 1.9% year over year, compared to the long-term average of 3.8%. While nominal rents have improved, a high inflationary environment means that rents are still falling in real terms. The areas of Denver recording the highest annual rent growth are suburban areas, particularly in North and East Denver. Downtown rents are in positive territory year-over-year, but performance is heavily bifurcated in the submarket and properties in the core CBD continue to struggle.

Investment activity has slowed since the beginning of 2022. With interest rates still on the rise, this trend is expected to continue through 2023 as the challenging investment market continues to sideline a growing number of investors.


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