Retail Real Estate Divergence Across Asset Types in the U.S. Colorado

Retail Real Estate Divergence Across Asset Types in the U.S. & Colorado
By Matt Call, NavPoint Real Estate Group

The U.S. retail real estate market is undergoing a period of dynamic transformation, marked by a notable divergence in performance across asset types.

From resilient grocery-anchored centers to challenged regional malls, investors are navigating a bifurcated landscape shaped by evolving consumer preferences, technological disruption, and limited new development.

Nowhere is this divergence more evident than in Colorado, where retail fundamentals remain strong but vary significantly by asset type and location.

A Shifting National Landscape

After years of turbulence caused by the rise of e-commerce and the pandemic, the U.S. retail market is showing signs of a renaissance.

National neighborhood and community center vacancy rates have dropped to historic lows as of Q1 2025, with rent growth projected to average over 3% annually over the next five years. Meanwhile, supply remains constrained, with new construction activity hovering near historic lows due to high costs and inflation-driven financing challenges.

However, performance is highly uneven across the sector. Grocery-anchored and service-driven retail are thriving, while regional malls and power centers continue to struggle with higher vacancies and declining relevance.

Experiential retail formats are emerging as bright spots, with gyms, golf simulators, and family entertainment centers attracting strong tenant interest, particularly in suburban environments.

Major retail chains such as Rite Aid, Hooters, and Forever 21 have filed for bankruptcy in 2025, underscoring the sector’s persistent volatility.

Yet, selective segments—such as Dick’s Sporting Goods and Aldi—are actively expanding, capitalizing on the stability and consumer engagement that physical retail offers when well-positioned.

Capital Markets Emerge from Hibernation

Retail has historically been the least institutional sector in commercial real estate due to its localized nature and diverse ownership structures. That is beginning to change with retail capturing over a quarter of all commercial sales volume.

Lenders, previously focused on multifamily and industrial, have renewed interest in retail, particularly in grocery-anchored assets, which offer stable, long-term tenants and essential services.

This renewed investor interest is not just flowing into traditional gateway markets. Secondary and tertiary cities are attracting capital due to superior yields and favorable demographic trends.

Colorado: A Microcosm of Retail Divergence

In Colorado, retail market trends mirror national dynamics, but with distinct regional nuances. The state’s retail sector has shown resilience and adaptability, bolstered by strong demographic growth, limited new supply, and diversified demand drivers.

1. Grocery-Anchored Retail: A Cornerstone of Stability

Grocery-anchored centers are among the top-performing retail assets in Colorado. These centers benefit from national credit tenants, long-term leases, and consistent consumer traffic.

As of late 2024, vacancy rates in grocery-anchored properties were as low as 3.5%, with rent growth outpacing other retail formats. Investors are drawn to their recession-resistant characteristics, making them a preferred choice amid economic uncertainty.

2. Suburban Multi-Tenant Retail: Outperforming Peers

Suburban retail centers are another standout, experiencing a 10-year low vacancy rate of 4.2% in Q1 2024. The lack of quality supply, combined with strong population growth in suburban corridors, has kept demand robust.

These centers are increasingly anchored by experiential tenants such as boutique fitness studios, indoor pickleball arenas, and immersive entertainment venues—offering a buffer against e-commerce headwinds.

3. Strip Malls: Flexibility and Foot Traffic

Often located along major thoroughfares and within neighborhoods, strip malls have remained resilient by offering smaller, flexible spaces attractive to local businesses, medical users, and service tenants. Their ability to serve as “last-mile” retail hubs enhances their relevance in a rapidly evolving consumer landscape.

4. Downtown and Mall Retail: Facing Headwinds

Conversely, ground-floor retail in downtown Denver’s office buildings has seen reduced leasing activity due to lower foot traffic and hybrid work trends. Regional malls and large-format power centers are contending with higher vacancy and tenant turnover, although some owners, like Simon Property Group, are reinvesting in Class B mall assets for conversion to mixed-use environments.

5. Mixed-Use Retail: Integrating into Urban Development

Retail is increasingly being integrated into mixed-use developments, particularly in high-density neighborhoods like RiNo and Cherry Creek. These projects offer ground-floor retail beneath residential or office uses, creating vibrant, walkable environments that align with consumer lifestyle shifts toward convenience and community engagement.

Challenges and Outlook

Colorado’s retail sector isn’t without challenges. The persistent lack of new construction, especially in core markets like Denver, creates a bottleneck for expanding tenants. Additionally, economic headwinds—such as inflation, higher interest rates, and consumer debt—may temper retail spending in the near term.

There is also the continued ascent of e-commerce, which remains a competitive threat, particularly for apparel and discount-focused retail formats.

Yet, these pressures are catalyzing adaptation. Shorter lease terms, increased investment in experiential retail, and creative tenant mixes are helping landlords stay agile.

Importantly, the repositioning of obsolete or underperforming assets—whether through demolition, mixed-use redevelopment, or conversion—continues to right-size the market and strengthen fundamentals.

Conclusion

The U.S. and Colorado retail real estate markets are no longer defined by a single narrative of decline or recovery—they are characterized by divergence. Success is increasingly dependent on asset type, tenant mix, location, and adaptability.

Grocery-anchored and suburban neighborhood centers offer defensive strength, while experiential and service-based retail formats present compelling growth opportunities. Meanwhile, traditional malls and downtown retail must evolve or risk obsolescence.