Metro Phoenix Retail Market Continues to Gain Steam

City of Phoenix

  • Rents Bottom Out
  • Investment Sales Volume Up
  • New Construction is Minimal
  • Vacancy Expected to be 10% or less by end of the year

The Metro Phoenix retail market is continuing to improve with strong momentum continuing to build in leasing activity as well as investment sale transactions. Additionally, the trend in rental rates, which lag behind leasing and absorption activity, has also bottomed out and has turned positive. With minimal new construction in the pipeline, market fundamentals are favorable for strong continued momentum growth in leasing, absorption and rent growth.

Increasing arrowsLeasing Activity

In the second quarter of the year strong tenant leasing activity resulted in over 1,000,000 square feet of retail space being absorbed. This marks the ninth quarter in a row of positive leasing activity and further shows that the worst is well behind us. New leases with tenants such as RoomStore Furniture (120,000 SF), Blast Fitness (61,500 SF), Hobby Lobby (50,000 SF), AMC Theaters (37,600 SF), Michaels (30,000 SF), Golds Gym (30,000 SF), Big Lots (28,400 SF), multiple deals with Goodwill (12,000 – 25,000 SF), multiple new Fitness Center leases and Furniture Stores have all contributed to robust leasing activity in the marketplace.

Sales Activity

Investment sale activity in the second quarter of 2013 increased with 40 transactions taking place for a total transaction volume of $339M at an average sales price of $121/Square Foot. This is up from the first quarter of the year when 36 transactions took place for a total transaction volume of $218M at an average price of $218/Square Foot.  Sales activity, thus far in the year, reflect an increase in the number of sales taking place although the average price per square foot is lower reflecting an increase in the volume of “B” and “C” properties trading.

Rental Rates

Lease rates have finally bottomed out and are expected to rise this year for the first time since the beginning of the recession in 2007. Average asking rates in the Phoenix Metro retail market are $14.25 per SF up $.05 from the first quarter. With continued increasing tenant demand and virtually no new supply, rates are expected to begin to rise which is a very welcomed occurrence for patient landlords.

Vacancy & Availability

Vacancy in the Metro Phoenix retail market dropped to 11.1% during the second quarter, down from 11.4% in the first quarter of the year. Although not yet back to pre-recession occupancy rates, the Phoenix retail market has improved substantially from its high water mark of 12.9% in 2011. Further, with very little new construction in the pipeline  and with an increasing demand from tenants Metro Phoenix’s vacancy rate will continue to improve thought he balance of the year and beyond.

Summary and Forecast

As evidenced by the continued leasing activity, absorption and investor demand, the worst is well behind us in the Metro Phoenix Retail marketplace. Continued tenant demand coupled by limited new supply will drive the vacancy rate to 10% or below by the end of the year and rental rates will start their climb upwards, all of which is welcomed news to retail property owners.

 Greg Abbott | Senior Vice President Investment Sales | 602.792.5200