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.