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Retail 24/7.
<br />OWNER ADVISORY
<br />RETAIL BOX REPORT
<br />MID -YEAR 2011
<br />CBRE
<br />CB RICHARD ELLIS
<br />METHODOLOGY
<br />We surveyed vacant retail box spaces
<br />in excess of 20,000 contiguous square
<br />'eet located in shopping centers
<br />or freestanding buildings with the
<br />Denver Metro Area. Absorption was
<br />based on retailers that either signed
<br />leases or opened within these spaces
<br />in the last 2 years. The boxes were
<br />graded on A, B or C qualify basis.
<br />OPPORTU N (TIES I "The secret of success is to be ready when opportunity
<br />comes." AIII lough Benjamin Disraeli, Victorian Prime Minister of the United
<br />Kingdom, wasn't discussing commercial real estate when he originally
<br />made the above quote, the message certoinly opplies to Denver's current
<br />retail market. While Denver's retail market has suffered in previous quarters
<br />from a lack of prospects, improving retail market conditions - increased
<br />occupancy levels, positive absorption and the stabilization of rental rates -
<br />indicate new opportunities are emerging throughout the metro area.
<br />Both owners and retailers are looking for inventive ways to complete deals
<br />and reduce costs. Retail owners and operators are considering o wider
<br />range of tenants for their large spaces, and using creative leasing methods
<br />to recapture market lease rates. Retailers, meanwhile, are seeing value
<br />opportunities in recently vacated class A spaces (primarily old Ultimate
<br />Eledronics and Borders vacancies). As a result, 17 boxes hove been
<br />absorbed year -to -date, approximately 700,000 square feet. The majority
<br />of this activity occurred in the 2nd quarter, with 12 box transactions on the
<br />books. Although the number of boxes on the market peaked at 90 at the
<br />end of 1st quarter, especially due to the early 2011 announcements of
<br />bankruptcies and closings for Ultimate Electronics and Borders, the end of
<br />the 2nd quarter saw a significant drop, to 79 boxes available metro -wide.
<br />Who are the current players and where are the opportunities? Entertainment
<br />uses are becoming more popular; both Game Shack and Big Time Tromp
<br />have leased space. Health clubs continue to find appropriate space in niche
<br />markets while specialty retailers, including sporting goods and discounters,
<br />are capitalizing on lower rents to increase their footprint. Additionally,
<br />grocery retailers continue to be active in the
<br />Denver market, completing five of the 17 box
<br />deals so fnr
<br />ADVISORY l The lingering effect of the
<br />recession has retailers focusing on optimization
<br />of revenue producing space and occupancy
<br />cost. In some cases landlords are providing breaks on the front -end of
<br />deals to position their centers for the long term. Others ore providing more
<br />creotive structures to optimize the mix at their centers. There is increased
<br />pressure for retailers to reposition their stores in their markets for long -term
<br />growth, therefore "bulletproofing" and "right sizing" for the community.
<br />To achieve their respective goals, both owners and retailers are seeking
<br />retail advisors to share local, regional and national trends and to assist in
<br />implementing solutions unique to their specific situations.
<br />As an example, Best Buy renewed their lease at Park Meadows, and will
<br />downsize their portion by 10,000 5F, to 50,000 SF, reducing their footprint.
<br />One measure of retail productivity is sales per square foot; by reducing
<br />their average store size and limiting the amount of stock per location, there
<br />is less need for storage as products are getting smaller - three or four
<br />High Definition TVs take up about as much room as one rear projection
<br />TV Best Buy increases their productivity and makes their store easier to
<br />navigate - responding to both financial requirements and customer
<br />trends. By subleasing their remaining 10,000 SF, Best Buy and the landlord
<br />both benefit - Best Buy optimizes their spoce, and the landlord has an
<br />opportunity to create a broader -based shopping environment, potentially
<br />increasing traffic and revenue for the center.
<br />National retailers overall are getting more creative when leasing or
<br />renewing. Bed Both & Beyond recently renewed two locations in Denver.
<br />In both coses, CBRE worked out long -term
<br />lease solutions in order to position the retailer
<br />appropriately going forward. As an advisor for the
<br />landlord, CBRE is working with several property
<br />owners with grocers as they look to expand several
<br />locations throughout Denver via new locations and
<br />expansion of existing facilities.
<br />TRENDS I We are seeing more competition than ever in the retail sector.
<br />Several "box" tenants are shrinking. Inventory levels are also shrinking.
<br />Community centers are performing well and power centers are being
<br />reinvigorated. Retailers are fighting to keep their market shore against
<br />the competition. Internet sales continue to rise.
<br />Retailers are realizing they cannot compete with
<br />the huge inventory available on the Internet and
<br />the large section available on "key" items, and
<br />instead are focusing on offering edited choices in
<br />their brick- and -mortar locations.
<br />enter the market. A few grocers are also closing stores in the area and we
<br />expect their locations to be leased by competitors in the coming year.
<br />As consumers continue to search for discounts and bargains, value oriented
<br />retailers continue to be very active. The home goods sector is also becoming
<br />more active. Housing sales ore slowly increasing and housing developers
<br />ore beginning to look for land. As the housing industry stabilizes and shifts
<br />bock into growth mode, home good sales are also expected to increase.
<br />IKEA's® grand opening, currently scheduled for July 27th, is creating much
<br />anticipation and is expected to energize the home goods sector locally.
<br />Entertainment uses are also hot. Box locations ore often ideal for
<br />entertainment uses, and the competitive pricing for class 8 and C locations
<br />appeals to those tenants. Additionally, sporting goods and health clubs are
<br />increasing their activity in the market, after 18 months of little or no activity.
<br />2012 OUTLOOK I Retailers are
<br />cautiously optimistic and, as consumer
<br />confidence increases, we expect to see
<br />the retail market to continue to stabilize
<br />and grow. Retailers in general are
<br />currently seeing value opportunities in
<br />the market, and are acting on them.
<br />Class A locations ore experiencing the most activity despite the higher
<br />development costs. It is expected that this activity will trickle into the doss B
<br />locations and create a bit more pressure in the markets as retorters focus
<br />on location and pricing opportunities. Over 50% of the current inventory is
<br />class C retail boxes; finding creative solutions for their challenges will be
<br />a priority.
<br />"Retailers are cautiously optimistic
<br />and, as consumer confidence increases,
<br />we expect to see the retail market to
<br />continue to stabilize and grow."
<br />"The lingering
<br />recession has reta
<br />optimization of re
<br />space and occupa
<br />effect of the
<br />ilers focusing on
<br />venue producing
<br />ncy cost."
<br />Grocery retailers continue to be very active in Denver, and market shore
<br />is shifting with the big three (King Soopers /Kroger, Weimar, and Safeway).
<br />Consumers' buying habits are changing and grocers are working hard to
<br />keep up with the shifting trends. For the big three grocers in the market,
<br />this means a continuation of pricing wars. While some grocery retailers
<br />are focusing on smaller stores with a "market feel," expansions in select
<br />locations are also common as is the addition of fuel centers. Independent,
<br />regional and ethnic grocers are also very active, looking for locations to
<br />WINNING SOLUTIONS I 'on Weisiger, Jim Lee and Matthew
<br />assignments, completing seven out of
<br />17 transactions, or over 40;, of completed deals, in the first half of 2011.
<br />In addition, we are working to "bulletproof" retail centers by taking key
<br />tenants and creatively working with municipalities, landlords and tenants
<br />to create solutions that optimize configuration, tenant base and revenue
<br />opportunities. These solutions are not unique to Denver; instead similar
<br />activity is seen in similar size markets nationwide. Working together and
<br />with notional CBRE team members, we are able to identify notional and
<br />regional trends to implement value -added solutions for our clients.
<br />Let us put our experience to work for you.
<br />CLASS A 117 PROPERTIES AVAILABLE
<br />CLASS B 1 22 PROPERTIES AVAILABLE
<br />40 PROPERTIES AVAILABLE
<br />• Newer retail boxes in vibrant clusters, i.e. pow,•
<br />centers and freestanding buildings in regional
<br />locations. Many are mall peripheral.
<br />• 17 Closs A boxes of just under 620,000 SF.
<br />• Includes 13 vacant former Circuit City, Ultimate
<br />Electronics and Linens 'n Things retail stores.
<br />• In high demand this year with tenants such as
<br />Mershalls, Nordstrom Rock and Colorado Ski & Golf
<br />actively leasing this product class.
<br />• Old boxes constructed in power centers, community
<br />centers or freestonding locutions.
<br />• May be located in strong trade areas but hove
<br />physical troits that negatively impact their desirability.
<br />• These properties have been absorbed by tenants
<br />such as Big Lots and PGA Superstore
<br />• Activity in this category Is often driven by landlords
<br />able to be aggressive with rents and TI allowances.
<br />• Typically constructed between 1980's and 1990 in
<br />secondary or neighborhood locations
<br />• Mony were originally occupied by grocery stores or
<br />other single - tenant users.
<br />40 vocont Class C boxes 11.86 million SF).
<br />Most of the Class C boxes were leased or occupied
<br />by secondary users, including Goodwill, ARC and
<br />Dollar Tree.
<br />JON WEISIGER 1 JIM LEE 1 MATTHEW DEBARTOLOMEIS
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