Denver Cap Rates Falling
By John Rebchook
DENVER-Investors paid about $1.8 billion for retail projects in Denver since 2000, according to a recent report by Frank Griffin, a senior director at the Frederick Ross Co., a broker who represents both tenants and landlords, conducts sales, site acquisitions and surplus property disposition. Since 2000, average cap rates have declined in the Denver area from almost 10% to around 8%, and the average per sf price has increased from about $85 to $135, Griffin notes.
Of course, some properties sell for much more. "Remember, these numbers represent averages--location, property type and tenant mix can significantly impact these figures," Griffin says. "Cherry Creek has buildings trading for $300 to $500 per sf with cap rates around 7%. Triple-net leased properties with quality credit tenants are selling for cap rates closer to 6%."
Cap rates, Griffin notes, have fallen due to lower interest rates, investor's lack of confidence in alternative investments, and a shortage of available properties and ample money to invest.
"Investor demand for retail properties has remained nearly insatiable over the past five years, fueling a feeding frenzy for shopping centers, triple-net investments and tenants in common deals," Griffin says. "This demand has been augmented by the relative stability of vacancy, which has ranged from about 7% to 9% over this period."
However, rising prices will not continue "ad infinitum," Griffin notes. "Long-term interest rates are up 50 basis points over the past year and short-term rates have climbed even more," Griffin says. "All indicators point to a gradual increase in the cost of money as the economy picks up steam and the Federal Reserve continues its monetary policy. Despite these trends, the fundamentals remain sound and investors still continue to find the retail market an attractive investment option." When the final numbers are in for 2005, Griffin expects a new high for per-sf prices for retail sales and a new low for cap rates in the Denver area.
Frank Griffin is on the Board of Directors of the Denver Metropolitan Commercial Association of Realtors (DMCAR). He is a Managing Director at Frederick Ross Company specializing in retail leasing and sales. Reach him at email@example.com or 303-260-4345.