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BY JOHN SALUSTRI

DENVER—There seems to be no downside to the Denver retail market–and that includes the suburbs as well as the CBD, where the famed LoDo district is, in the words of Jeff Hallberg, exploding. Of course, the headline continues to be the way the marijuana market is changing the face of local retail, a potential bellwether of what other cities will be like if and when pot is legalized in all 50 states.

Hallberg, a principal in the local office of Lee & Associates, says that the pot market “is an ever growing piece of the local retail pie. The nice thing for landlords is that they pay really well. You can probably get 15 or 20%–even 30%–more in rent than for a traditional retailer because the tenant will pay for location.” In fact, he tells of one client for whom he found space that would ordinarily go for “$16 a foot. For marijuana it was $40.”

But it should be noted that, in a classic good-for-goose-and-gander scenario, the shops do pay out, and Hallberg tells of one 1,000-foot store that produced $500,000 a month in revenues.

In large part the rents are driven by the premium for space. Restrictions in place limit where the shops can go, including their proximity to schools, rehab centers and liquor stores. By the way, they also have to close by 7pm, at least in Denver.

And there are potential traps for the landlord as well. For a lot of them “the main issue is refinancing,” he says. “Will a traditional lender finance that use?”

Of course, the marijuana business, newsworthy though it clearly is, remains only a segment of the macro-hot Denver retail scene–one that shows no signs of cooling, despite talk of market peaks. “In Denver, we’re a bit different than most other metro areas in that we haven’t overbuilt,” he says, clearly a lesson learned during the heady days leading up to the last economic dump.

“Over the past four years, there’s been about six million square feet of new retail space delivered.” That compares favorably–very favorably–to the 5.7 million delivered in 2007 alone. “We’ve been working hard not to overbuild,” which shows in the Denver MSA’s 5.6% vacancy rate.

And it shows in the rental rates, which he pegs around $30 a foot on average, with new product leasing space in and around $50 a foot NNN in the above-mentioned LoDo, RiNo (Lower Downtown and River North) and Central Platte Valley submarkets, all awash in gentrification and reflecting the fitness-center, Trade Joe’s, Fresh Market tastes of the millennials flocking in.

That compares to the mid-$20s that, depending on the anchor, suburban spaces are getting. But the Mile-High City is different here too, as Hallberg explains and, unlike other MSAs, the Denver suburbs have a secret–the ever expanding light rail. In fact, the metro’s Regional Transportation District in late April completed a leg connecting Denver International Airport with downtown’s Union Station with multiple suburban stops.

“Since we started with light rail throughout Colorado,” he tells GlobeSt.com, “transit-oriented developments have been thriving, especially because ridership is so high.” Not only commuters but developers as well are flocking to those high-use stops, “gentrifying the suburbs as well.”

Again, the rental rates tell the tale, and Hallberg reports that those high-density suburbs break the out-of-town mold with rents approaching downtown’s $30 a foot.

Clearly, Denver is firing on all cylinders, and redefining the market as it goes. Not surprisingly then, Hallberg is optimistic.

“Interest rates are always a wild card,” he says. “But Denver is one of the most sought-after living destinations in the country. If we continue to manage our development we will weather whatever comes next year better than most other metro economies.”Unknown

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