How downtown Phoenix compares to other cities for Covid-19 pandemic recovery

Brandon Brown, Phoenix Business Journal

Activity in the downtown Phoenix area hasn’t fully recovered since before the Covid-19 pandemic but is performing better than most large cities across North America, according to recent data from the University of Toronto.

Phoenix ranked No. 21 out of 63 downtowns measured, with a 72% recovery rate in the spring of this year compared to the same time period in 2019, according to the university’s research, citing mobile phone data. Salt Lake City had the highest recovery at 139% and San Francisco had the lowest at 32%.

The Phoenix geographical area included in the study spans from south of Interstate 17 through downtown and north to the midtown area. Downtowns were defined in the data based on areas of highest employment density.

Before Covid-19, downtown Phoenix was starting to gain momentum with the light rail, numerous residential projects and the growing higher education and bioscience corridor.

That growth included a new Fry’s downtown grocery store that opened in 2019 near the sports arenas, said Charles Skaggs, a senior vice president at Western Retail Advisors.

“For me, in my world, that was a huge validator that people are living downtown and they’re shopping downtown because Fry’s was having great success,” Skaggs said.

Because the office market took a major hit during Covid, this impacted the retailers that relied heavily on the workday traffic but is now being offset by the growing population in the area, experts say. The Super Bowl in February also helped bring hundreds of thousands of visitors to downtown Phoenix.

Phoenix has lots of downtown cranes — for residential projects

Since 2015, Downtown Phoenix Inc. data shows that nearly 7,500 residential units have been built downtown. As of Q1 2023, about 3,540 additional units were under construction while the current population is 23,919, a 22% increase from the 19,500 residents in 2020.

The growth of apartments in downtown has also contributed to the high number of cranes counted this spring, which totaled nine in Q1 2023. The Business Journals also created a downtown vitality index that assessed the performance of city centers earlier this year, which showed that Phoenix was the 10th best market for downtown recovery since the pandemic out of 40 large metro areas because of migration and air traffic.

Currently, Skaggs said most of the retail options in downtown Phoenix mostly consist of restaurants and entertainment but more boutique shops have started to pop up around Central Avenue and Roosevelt Row. About 75,150 square feet of retail space was under construction in Q1 of this year, according to Downtown Phoenix Inc.

“I think we still have a ways to go in terms of attracting more of what you would see, a mass of soft goods apparel, but I think we’re heading in the right direction,” he said. “It all goes back to the lack of people that had been living down there and now you’ve seen more people taking up primary residence downtown.”

Office sector still faces challenges

Downtown Phoenix’s office sector has struggled to bring back workers and companies while some office towers are starting to look toward turning into housing, hotel or retail uses. But the pandemic also gave office landlords the opportunity to upgrade their properties as more companies are looking for class A office space and amenities for their workers, said John Bonnell, a managing director at JLL.

Some buildings have secured leases in recent months but Bonnell said downtown Phoenix is seeing bigger changes behind the scenes in building ownership as office loans come due.

“I think the skyline on office buildings could get a little smaller, but that’s not a bad thing down there because the remaining buildings are in a really good position to lease space,” he said. “The office is just starting to come back down there. We’ve seen in the past year a lot of existing tenants expand.”

To move the office market forward in downtown Phoenix, Bonnell said the submarket needs to secure a high-profile or technology-related company as a major office tenant. In Q2 of this year, the downtown Phoenix submarket had a 26.9% direct vacancy with average asking rent at $32.94 per square foot.

“We need another one of those to jumpstart the office so we can get a big user or couple of big users to commit downtown so others can say ‘Wow, if they’re down there, it must be the place I need to be,” he added.

Real estate experts say downtown Phoenix still has room for growth as the city works to define what downtown will become in the next 10 years as more people move into the area. The city has been working on plans for a new hotel and expansion at the Phoenix Convention Center and is in the initial stages of examining a new downtown entertainment district.

Originally published by the Phoenix Business Journal on August 15, 2023.

Starbucks Opens Only Metro Phoenix Double Drive Through in Avondale

Western Retail Advisors completes lease for new Indian School Road location

Leading retail brokerage firm Western Retail Advisors (WRA) has completed the lease for a new Starbucks in Avondale, Arizona, featuring the Valley’s first-ever Starbucks double drive through with two order points.

The lease relocates Starbucks from an adjacent, undersized store into a larger, 3,070-square-foot location at 10655 W. Indian School Rd, fronting Indian School Road just east of 107th Avenue and west of the Loop 101 freeway. The building was previously occupied by a KFC but had been vacant for over four years. The new lease renovates and repositions the building for its new use by Starbucks.

Western Retail Advisors Senior Vice Presidents Bryan Babits and Bryan Ledbetter represented the landlord, Atlas BL Avondale, LLC, owned by Laguna Hills-based property management firm Atlas Properties. Lance Umble with Phoenix Commercial Advisors represented Starbucks.

“This new location gave Starbucks the store size it required but could only stack three or four vehicles in its single drive through lane – far below what was needed to manage the anticipated traffic at this site,” said Babits. “Creating a double drive through is a great example of Starbucks creativity, overcoming an operational challenge and already contributing to a 26 percent jump in sales at this new address.”

A leading U.S. retail market, Phoenix at the start of Q2 2023 had absorbed 4.1 million square feet of retail space year-over-year – the strongest absorption since the start of the Great Recession, according to CoStar. The market currently sits at an overall retail vacancy rate of just 5 percent.

“Phoenix’s retail demand is happening not only in traditional stores but also in the Quick Serve Restaurant category, making us one of the nation’s hottest locations for new and expanding concepts,” said Ledbetter. “Those trends are reflected clearly at this Starbucks store.”

Starbucks anticipates it will reach 45,000 stores by the end of 2025 with a mix of potential models. One of those models could include drive-through-only, underscoring the importance of drive-through activity to the chain’s overall success.

Mountainside Fitness set to start work on biggest Arizona fitness center

Angela Gonzales, Phoenix Business Journal

Mountainside Fitness plans to open its biggest Arizona fitness center to date.

The Scottsdale-based health club just signed a 50,320-square-foot lease to take over a former Albertson’s grocery store at Scottsdale Towne Center, built by Vestar at the southeast corner of the Pima Freeway and Frank Lloyd Wright Boulevard.

The 300,000-square-foot retail center managed by Vestar includes a Target, TJ Maxx, Ross Dress for Less, Wells Fargo and several restaurants and smaller retailers.

“The Target in this center is an amazing Target,” said Craig Cote, CEO of Mountainside Fitness. “There are busy Targets and there are super busy Targets. This one is super busy. I’m familiar with it because my wife shops at that Target.”

When Albertson’s merged with Safeway in 2014, Albertson’s closed that store but continued to pay its lease to uphold its lease obligation, he said.When the property became available in April, Cote was up against several other potential tenants, including a golf retail store and a flooring company.

“Some of the users were not as large as 50,000 square feet and they were requesting the building to be subdivided,” Cote said. “It’s a lot of pressure on a landlord to cut a building in half. When you don’t have to cut a building in half, it’s certainly preferred.”

JLL brokers Regan Amato and Ryan Tanner represented Mountainside Fitness, while brokers Ryan Desmond and Neil Board from Western Retail Advisors represented the landlord.

This is the third Vestar-Mountainside partner location in the Valley, with the other two in Queen Creek and Happy Valley.

Mountainside will spend $4M on improvements

Plans call for investing about $4 million for the tenant improvement project, which will include all new HVAC units, a new building facade, full demolition of the prior grocery store and a full rebuild of the fitness center to include locker rooms, a steam/sauna, kids club, three group fitness studios, basketball court/pickleball court, outdoor workout area, recovery room, elevated cardio platform and strength area.

Construction of the property at 15660 N. Frank Lloyd Wright Blvd. in Scottsdale is expected to take about eight months for an opening in mid-2024.

It will employ 150 people, including front desk, member services, personal training, child-care attendants, maintenance technicians and a management team.

This will be the 21st Mountainside Fitness to open in metro Phoenix, following its 20th location that will open in January in Avondale.

It also will be its biggest yet. The next closest in size is the 42,000-square-foot club at Happy Valley Towne Center in north Phoenix, which previously housed a Sports Chalet.

While the new health club is only about two miles from a smaller Mountainside facility at the Ice Den, 9375 E. Bell Road, that 15,000-square-foot Scottsdale facility will remain open, Cote said.

Long-range plans call for renovating some of the health clubs over the next two to four years, Cote said.

“The focus of those remodels will be outdoor work areas, pickleball courts and increased functional training space,” he said.

Meanwhile, Cote has his eye on additional expansions, at a time when Bed, Bath and Beyond is closing its last stores in the Valley.

“We’re looking at new properties for expansion,” Cote said. “The majority of them will be new build construction. There are very few vacant boxes in desirable locations. Very rarely do you see an empty box and say, ‘that’s a great spot for an up-and-coming business.'”
Originally published by The Phoenix Business Journal on July 31, 2023.