Empty spaces in Aspen
November 13, 2009
ASPEN – The Quiet Years appear to be back, judging from the empty storefronts lining the streets of downtown Aspen – a scene that’s likely to remain throughout the upcoming ski season.Commercial brokers, whose bread and butter comes from sealing deals with local landlords and tenants, say the market has slowed so dramatically that it could be a year or two before retail space in downtown Aspen returns to a normal vacancy rate.”Nobody is seeing anyone doing anything,” said commercial broker Bob Langley. Since the financial crisis began last year, the city’s sales tax revenue has plummeted nearly 20 percent. Dozens of shops and restaurants have closed and left town. And while new businesses have replaced some of them, the vacancy rate is higher than any broker can remember.Nearly every block in the downtown core has an empty storefront and it appears worse than it is because high-profile spaces like Zl coffee shop, Ruth’s Chris Steakhouse, D-19 restaurant and the Red Onion are vacant. While there’s been interest in all of those spaces, no deals have been finalized. Industry observers estimate that Aspen’s downtown commercial vacancy rate is between 8 and 10 percent. Some say it’s even higher.They all agree the state of affairs in the local commercial landscape is bad, but they are reluctant to spread that negative message. So they try to remain positive and hopeful.
“The vacancy is higher than I’ve ever seen in 23 years,” said commercial broker Karen Setterfield.After doing a quick tally, local appraiser Randy Gold calculated that there’s at least 40,000 square feet of retail space available in the commercial core, and about 30,000 square feet of office space is sitting empty.Ruth Kruger, an Aspen real estate broker, said the vacancies in downtown Aspen are about the same as they were after the Sept. 11 terrorist attacks. At the time, the rest of the country was experiencing double digit declines.The local market bounced back quickly and the city of Aspen relaxed its laws to attract investment. Soon, every retail space was full and it remained that way for several years. “When you are 100 percent occupied and you all of a sudden see 7 percent vacancy, it all looks like it’s vacant,” said Bill Small, an Aspen commercial real estate broker, adding this downturn is worse than the fallout of 9-11.”The difference is that we experienced a softening of the economy with a bull market and now it’s a soft economy in a bear market,” he said. “It’s not just Aspen, it’s a reflection of what’s happening nationally.”By all accounts, it’s unlikely the local market will recover for at least the next six to 12 months.
Most retailers order their inventory a year prior to it hitting the floor, so few are prepared to open shop this winter, Kruger noted.”It’s too late for most retailers,” she said of prospective tenants.Based on conversations with prospective tenants, their agents and those familiar with the industry, Langley doesn’t expect national retailers to enter the Aspen scene again until 2011.”Quite a few of these national retailers have long had designs on Aspen but their 2009 and 2010 budgets didn’t have store expansions built in them,” he said. “They’ve got screaming deals out there, but no budget.”Langley added that many tenants and retailers are waiting to see what happens at the beginning of the year before making any moves.Small – who has had minimal interest from restaurateurs in taking over the lease at the now-vacant Ruth’s Chris space at Galena Street and the Cooper Avenue Mall – is a bit more optimistic.”By next spring, we’re likely to see evidence of a bounce-back,” he said.Interest from national retailers had dropped off since March but it appears there’s signs of hope. Kruger said interested parties were coming into town this weekend to look at retail space. Setterfield noted that an international retailer is interested in space, and an East Coasttailer will be in town next week to scout locations. She also is close to signing a deal with a small, local retailer.”This kind of activity usually happens from June to September with tenants wanting to start new leases before December,” Setterfield said. “So it is late in the ‘leasing season’ for so much interest.”The last big retailer to a sign a lease in downtown Aspen was clothing store James Perse, a deal that was completed in November.A highlight in the local market is Marmot’s recent commitment to Aspen. The outdoor apparel and equipment manufacturer will open the company’s first Colorado retail store at 210 S. Galena St. Amen Wardy downsized its operation and sub-let the space to Marmot, which has a second retail store in Park City, Utah.It’s those small, regional retailers that might be the wave of the future for downtown Aspen.”I think we’ll see more interest from those types of retailers,” Small said, noting that high-end retailers who already have a presence in Aspen appear to be holding their ground, with the exception of Bulgari, which recently closed its shop at the corner of Mill Street and Hopkins Avenue. Sources say the high-end jewelry store is still paying rent, as is Ruth’s Chris, whose space commands $42,000 a month.
There isn’t much new occupancy, but a few entrepreneurs are establishing “pop up” stores in spaces with short-term leases.”They are testing the market to see if they like it,” Kruger said.For example, spaces in the Residences at the Little Nell building will be leased on a short-term basis and local photographer Lynn Goldsmith has leased a space downtown, Kruger said.Setterfield said local business owners are looking for smaller, more affordable spaces.”There seems to be more life in the restaurant arena than in retail,” she said.Several bars and restaurants have opened or are opening this year in the downtown core. Deena Marino, who was a partner in the now-closed D-19, is opening an Italian restaurant called Ellina where Dish was located on the Hyman Avenue Mall.She and an investor bought the 10-year lease from the previous owners, and are currently remodeling the space. Marino said she expects to open in mid-December. She said her landlord, Randy Woods, has been flexible with tenant improvements and rent.”Our landlord has been great and is definitely working with us,” she said. “He told me “I want you to succeed.'”The failure of D-19 and the Popcorn Wagon next door was partly because of the economy, Marino said, but mostly because the other investor wasn’t willing to put more money into the business, which was challenged because of Aspen’s inherent seasonality.Other entrepreneurial examples include longtime locals Douglass Clayton and Gregg Hemming’s plan to open the Grape Bar, where the Wine Spot used to be in the Grand Hyatt. Ed Zane recently opened a Mexican restaurant called La Palapa above Zane’s Tavern, where the Argentinean eatery Buenos Aires was located.”The old trees are falling in the forest and new ones are growing in,” Small said.
It appears that landlords are being more flexible with their tenants, which wasn’t the case earlier this year. As the economy worsened, businesses left and current tenants were unable to pay the rent, reality set in for many building owners.The attraction for many business owners is that landlords seem willing to negotiate, brokers said. They are open to creative leases and are more interested in ensuring the success of their tenants. Some are even offering rent abatements and accepting deferred payments from their tenants.”Some landlords have done some really nice things but it’s on an individual basis and most of it is under the radar because they don’t want people to know their deals,” Setterfield said.Said Small, “Tenants have more bargaining power than ever before.” Kruger agreed, saying businesses can enter the Aspen market much more easily.”Now is the opportunity to find a good deal,” she said, adding there are several sub-leasing opportunities that lend themselves to deal-making opportunities.Several spaces are occupied by tenants who are paying partial rent or aren’t paying at all. Those spaces are being actively marketed, brokers say, either because the landlord wants a guaranteed revenue stream with a successful business or the current tenant wants out.Even though landlords are making deals they don’t appear to be budging on rent prices – the commercial retail market is still dictating between $75 and $150 a square foot.A lease for the former Lush space, at the corner of Hunter Street and Cooper Avenue, was reportedly signed by local businessman Boogie Weinglass for more than $110 a square foot. He plans to open a children’s clothing store called Boogies Too.For decades, Aspen has been a dynamic market with low vacancy rates and chronic demand. “We haven’t had that for the past 15 months,” Langley said. “There’s no question that there is supply but the problem is that there’s no demand.”He added that the local market has been accustomed to “credit tenants,” who have histories of solid performance and it escalated property values.
Square footage rates for office space throughout downtown has come down significantly because there is so much of it.”There’s five or six years worth of inventory available,” Langley said.Brokers estimate that there’s more than 30,000 square feet of empty office space in the commercial core. That’s partially a result of local professionals like lawyers, accountants, architects and real estate agents downsizing their operations.”Most of them are reducing their office size,” Kruger said. “Unfortunately, there is more office space available now than I’ve ever seen.”Small said rates used to hover around $40 a square foot. Now office space is attracting in the high $20 to mid $30 range. Professionals won’t be expanding their operations or moving into town anytime soon, he noted.
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Kruger has faith that Aspen’s commercial market will recover.”This is not going to last forever, this is a short-term scenario,” she said. “[Aspen] is by essence, a healthy financial district, and Aspen is still so resilient in its spirit and ability to adapt.In tough times, it’s important to think in relative terms, Small said. “We’re still not unhealthy compared to other markets,” he firstname.lastname@example.org