Will Phoenix’s hot retail real estate market continue into 2024?

Brandon Brown, Phoenix Business Journal

A common refrain I heard in 2023 from brokers, landlords — really, anyone in the Valley’s retail commercial real estate world — was “I’m lucky to be in Phoenix.”

Compared to the rest of the country, Phoenix’s retail real estate market performed extremely well in the past 12 months with record vacancy rates and a lot of demand from restaurants and retailers to be in any spaces available.

I chatted with a few industry professionals over the past couple of weeks about what they expect in 2024, and optimism was a common theme of the discussion.

“It potentially could get even better [than 2023] with some easing of those macroeconomic pressures,” said Dave Uhles, senior vice president at Western Retail Advisors. “If interest rates start to drop and construction costs either drop or people get more comfortable with where they’re at, that could all help push more activity.”

One issue that has driven down vacancy rates, but also driven up rents, has been the lack of new retail development. While some has come online in 2023, more, especially in the Valley’s outer suburbs, is expected to be completed in 2024, and there will probably be more room to grow.

At the end of the third quarter, the Valley’s retail vacancy rate was at an all-time low of 5.1% according to a report from Avison Young.

“I think there’s going to be continued projects on the outskirts of town – San Tan Valley, Buckeye, Surprise,” said Kalen Rickard, also from Western Retail Advisors. “There’s going to be some continued demand in 2024 to build some new projects in those areas.”

One of the retaill projects that attracted the most buzz is the planned Verrado Marketplace in Buckeye, the first of its kind major shopping attraction for the West Valley city. In November, the Business Journal reported that major tenants including Target, Safeway and Harkins have committed to lease space at Verrado and open by the end of 2025.

Still, Rickard said he isn’t expecting things to boom extremely quickly. He pointed out that 2024 is an election year and historically that can slow down some development and other major deals.

“Election years always seem to have a little bit of a weird way of playing out. There’s caution around the election and what may happen,” Rickard said.

Originally published by the Phoenix Business Journal on December 26, 2023.