By Bryan Ledbetter, Executive Vice President and Principal
Western Retail Advisors
Phoenix’s retail market continues to surge. Vacancies are dipping below 5 percent, gross absorption is exceeding 1.5 million square feet in the third quarter and asking triple-net rates continue to increase, reaching into the mid-$50 to $60 per square foot range for newly constructed space.
West Valley Leads the Charge in New Development
After decades of limited retail construction, metro Phoenix — and the West Valley, in particular — are flush with new space. Projects like Simon-CRE’s Prasada in Surprise and Vestar’s Verrado in Buckeye are among the major new developments providing the high-end availability that tenants and residents have been asking for.
Although elevated debt and construction costs have tempered new development, more than 1.2 million square feet is still under construction. The lion’s share of that product is already pre-leased. This keeps developers and investors bullish on Phoenix, and on the lookout for the Valley’s next development frontier. Though the West Valley reigns as Phoenix’s latest retail boom market, outliers in the East Valley are teeing up for their turn in the spotlight. Apache Junction is a great example…
Far Southeast Valley Emerges as a Growth Engine
A neighbor of the exceedingly popular Mesa and Queen Creek retail markets, “AJ” is the fourth-fastest growing city in Arizona. There are expectations that this area will double in population, placing it among the state’s top-five fastest-growing cities for the next decade. Not many know that AJ stretches as far south as the new State Route 24, positioning the city to capture robust housing and advanced manufacturing growth — both of which require many forms of retail support. The combination has AJ on a path to become the metro market’s new Goodyear or Surprise.
Closures Create Opportunity as Fundamentals Stay Strong
Although Phoenix has not escaped major store closures, such as Joann, Big Lots and Party City, the activity hasn’t had a noticeable impact on fundamentals. In many cases, these vacancies have even been backfilled at rents that are nearly 50 percent to 75 percent higher than previous tenants were paying. Empty big boxes have also created much-needed space for larger users looking to enter or expand their footprints in the market. One recent example is SanTan Village Marketplace in Gilbert, where the exit of Big Lots made way for the Valley’s first Cavender’s Western Wear store; Bed Bath & Beyond was replaced by a Painted Tree Boutiques; Office Max was replaced with a Ross Dress for Less; and Downeast was replaced with La-Z-Boy furniture. All this points to a metro Phoenix retail story that is still being written, but where all signs point to continued investment and growth.
