Space odysseys: Restaureteurs adapt to rising rents.

• Author: Siebrase, Jamie
• Position: RETAIL RESTAURANT

In 2015, 100,000 newcomers migrated to Denver, buttressing the city's status as a boomtown, and accounting for a laundry list of distinctions: Best Place to Live (U.S. News and World Report), fourth Best U.S. City for Young Entrepreneurs, and sixth Best U.S. City for Foodies (NerdWallet).

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We've read about the resulting plight of residential renters. What about commercial tenants?

Squeezed by high demand and low supply, the direct average lease rate for retail space in downtown Denver has jumped to $22.53 per square foot, according to the Downtown Denver Partnership's 2016 State of Downtown report. Restaurants in that vicinity, though, account for 49 percent of sales tax collection, totaling $45 million. In the current real estate climate, the restaurant industry looks a little like America's social stratification--big businesses thrive, startups tend to flop, and those caught in the middle must innovate.

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The general rule is simple: A restaurateur's occupancy cost--rent plus interrelated fees--shouldn't exceed 10 percent of gross sales. For many local joints, though, it's become challenging to operate within those parameters.

Mary Nguyen, for example--owner of Olive & Finch and P17--is preparing to expand into Cherry Creek North this fall with a second Olive & Finch location. She's willing to pay a premium for heavy foot-traffic and strong branding--one that's higher than the 10 percent occupancy cost norm. "Cherry Creek," Nguyen says, "is by far my highest rent per square foot." The rent in Cherry Creek is estimated to be 30 percent higher than LoHi, and more affordable than LoDo, which is comparable to Boulder's Pearl Street Mall.

Punch Bowl Social founder and CEO Robert Thompson secured his deal in Denver's Baker district in 2010, and it's "screeching good," he says. Thompson is shopping other Denver neighborhoods to expand his "eatertainment" concept, and the next deal might be less economical.

"Denver's hot, and prices are well represented compared to the national market," Thompson says. He gave up on the Highlands years ago, and is exploring South Denver, where high restaurant capacity is fortified by residential density. He also shuttered his Uptown gastropub, Argyll Whiskey Beer, in May, and is fine-tuning details for a Punch Bowl Social in the former Stapleton International Airport air traffic control tower. At the city's northeastern limits, Thompson explains, rent is controlled by "the...