Lower rents changing downtown tenant mix

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Bryan and Scott Jewelers’ former location is a large space contributing to the commercial vacancy rate downtown.

When Kati Brewer started looking for a downtown storefront for her Pure Nutrition shop earlier this year, she was blown away by the affordability off Tejon Street.

She’s paying $900 a month for her location at 22 E. Bijou St.

“That’s really good for a retail spot,” Brewer said.

And the landlord gave her the first two months free so she could decorate the space and get it ready without rent expenses before opening to customers.

Rents and concessions such as those are common these days, especially downtown, says Mark Useman, a broker with Sierra Commercial Real Estate.

“I think downtown is going through a transition right now,” Useman said.

Lower rents and front-end deals for tenants have invited different retailers into the fold.

Where high-dollar stores like Lulu used to sell $200 jeans, Cottonwood Art Studios sells locally produced pieces. Nearby, at 230 N. Tejon St., Halo Boutique has replaced Ellie K.’s higher-priced women’s clothing with trendy business casual pieces priced between $15 and $60. The Candy Bar, a 1950s style candy shop, has taken the place of longtime luxury retailer Johannes Hunter Jewelers, which moved to University Village Colorado on North Nevada Avenue.

Asking rent downtown is the lowest it has been since 2004, according to Sierra’s records. And the lower rents are changing the makeup of the downtown retail scene, which experts say is not necessarily a bad thing.

How low can they go?

“Rents downtown have dropped off every year since 2008,” said Ben Lowe, a Sierra research analyst. “I think it’s been more dramatic downtown than in other parts of the city.”

Downtown asking rents average $13.46 per square foot, less than 2004 when they were $13.75 per square foot. They’re also 19 percent lower than at their peak of $16.65 in 2008.

The northeast part of the city, which includes Briargate and Powers Boulevard, didn’t fluctuate as much. Rents there are $20.37 per square foot now, up from $19.32 in 2004 and down 6 percent from their $21.60 peak in 2008.

It’s a tenants’ market, Useman said.

Beni Levi, who opened the Candy Bar at 124 N. Tejon St. talked his landlord down from $4,400 a month.

“I wouldn’t say it was about negotiating power,” he said. “It was about a fair amount in this time. You can ask as much as you want, but you have to have someone behind it to pay it.”

Levi’s rent is much higher than Brewer’s on Bijou. Brewer and her neighbor Claudine Malcolm, who opened Hyacinth’s Boutique & Spa at 24 E. Bjou St., both looked on Tejon first and decided it was too expensive.

“I would have had to charge more there,” Malcolm said.

The lower rents downtown, especially off Tejon, are resulting from demand and supply issues, Useman said. Downtown retail vacancy is at 19.66 percent, highest in the city. That number comes from a couple larger properties that remain empty, like the former Bryan Scott Jewelers location.

New tenants

Other storefronts that were vacant earlier this year and back to last summer have filled. PB & Jellies opened a small shop at 103 N. Tejon to sell T-shirts and peanut butter. Next door, CJ’s Unique Boutique sells clothing and locally-made organic body creams. At 109 N. Tejon, the Venice Olive Oil Company opened a store.

Where a lot of cities and retail centers with low rents resulting from poor vacancy and poor sales face an undesirable tenant pool full of tattoo parlors and fast-food restaurants, this mix holds promise, said Kelly Kost, a Seattle-based downtown retail consultant with Downtown Works.

“Malls and lifestyle centers can craft a vision, and then they’re very selective because they know they’re putting together the right mix,” Kost said. “Downtown you have different ownership and not everyone is aligned.”

Her company works with downtown organizations having trouble with their retail centers to identify the best tenant pool for their market. The next step is hiring a matchmaker to help property owners find and wait for the right fit.

If it’s happening organically in Colorado Springs, that suggests there’s already buy-in from landlords who aren’t just going to take the first “warm body” who approaches. But she said it’s always a good idea for city leaders and downtown stakeholders to have an organized conversation about what they want.

Part of a renaissance?

Low rents are no good for landlords and brokers, said Mike Berne, president of MJB Consulting, a downtown retail recruiter with offices in New York and San Francisco. But they might be good for the area in the long run.

“Sometimes lower rents can open the door for interesting things to happen,” Berne said. “They can allow for the sorts of tenants that can be part of a process where the downtown reinvents itself.”

He said low rents allowed trendy, cutting-edge businesses with more affordable goods that attracted younger, cooler crowds to areas like SoHo in New York City and even LoDo in Denver.

“They were the beginning of a process that led to something else,” Berne said.

Low rents are, of course, also a symptom of a business district in decline. Much depends on who the new renters are once rates drop. Landlords need to get someone into their spaces and it’s hard to say how long they can hold out for the “right” tenant.

But holding out can pay off in the long term, he said.

“Longer-term potential also means higher rents and property values for landlords,” Berne said. “So those landlords that can take a longer-term, patient capital view could benefit.”

Malcolm said she was pleased with her deal on Bijou. More than the rent, what sold her was a short-term lease, giving her the opportunity to try the location without the high-stakes of a five-year lease she would have to default on if she doesn’t make it.

That was another enticement for Brewer. Her landlord said she could go year-to-year, relatively unheard-of in retail rental markets.

Useman said there’s a good reason for those good terms.

“When the landlords are giving concessions and low rents like that, they don’t want to commit to those for a long period of time either,” he said. “They want to get someone in there. But, obviously, they’re hoping things are going to change soon. It goes both ways.”