The Top 4 Retail Real Estate Impacts to Watch For in Arizona

As we continue to climb our way out of the great recession, here are the top four impacts to watch affecting retail real estate in Arizona for 2016 and beyond:

  • Impact of Housing Market – Housing drives retail and restaurant development around the market place. There are two major housing factors that will continue to shape the retail landscape in Arizona over the remainder of 2016 and the years to come. First, multi-family development in the infill core areas of Phoenix, Tempe and Scottsdale will continue to bolster sales in these areas and increase demand for quality retail and restaurant tenants. It will be interesting to watch occupancy levels as new development projects deliver thousands of new units in these markets. Second, new development housing, which has traditionally sparked new retail developments on the suburban areas of the market, are picking up momentum. With more people occupying housing in areas such as Gilbert, Chandler, Surprise, Buckeye and Queen Creek, we will see new grocery anchored and neighborhood shopping centers begin to pop up in these areas, providing additional retailing opportunities.
  • Impact of High Occupancy in certain property types and submarkets – Vacancy Rates continue to fall as we come out of the great recession. The greater Phoenix market is averaging 9.0% vacancy but certain property types and submarkets are performing well above these market averages. Power Centers are averaging a 95.3% occupancy level.   The Northwest Phoenix (including Arrowhead, Surprise and Happy Valley trade zones) submarket, with 94.1% occupancy, and Scottsdale submarket, with 93.1% occupancy, are performing well above the market average. This is leading to increased retail rates in these trade zones and property types. We suspect that the occupancy levels will continue to impact adjacent retail property that appear more and more attractive to tenants competing for high quality space. Landlords owning high quality retail space are pushing rents and looking to upgrade quality of tenancy.
  • Impact of Millennials and Baby Boomers – Millennials have officially taken over the Baby Boomers by sheer numbers, but both continue to have substantial impact on retailing and restaurants. As many Baby Boomers shed their Millennials from under roof, Baby Boomers are looking forward to a change in their lifestyle from child rearing responsibilities to increased consumption of activities, products and restaurants. Retail developers will need to consider more experience based destinations including shopping, dining and entertainment options for both groups. Millennials have pushed back their own child rearing days, but as the group ages, we will see a demographic switch as they start to have kids and consider larger housing options in the suburbs vs. infill multi-family options. Baby Boomers are set to inherit billions of dollars over the next several years, causing a multiplied impact on their spending patterns. Baby Boomers and Millennials will shape the next ten to twenty years of the retailing and restaurant development as demands continue to shift.
  • Impact of the Political Atmosphere – Every four years, there are always major concerns in the United States as we shift to a potential new President and the impact that the President has on consumer spending patterns. Retailers and Restaurants are bracing for several potentially major shifts due to national and local policy changes. Minimum wage impact and the ability to find quality workers has been a major concern to many concepts on national and local levels. Look for these political concerns to fade after the election year as uncertainty about the future settles.

Retail real estate will continue to evolve over the coming years. If you need any assistance navigating the landscape in Arizona, Strategic Retail Group is here to help.

Kalen Rickard– Vice President

602-778-3832 | kalenr@srgaz.com

All market statistics taken from the 1st Quarter 2016 Costar Retail 
Market Report
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