193
The Pheonix economy is recovering slowly, with accelerating employment growth and rising housing prices outpacing national averages. These drivers have begun to stabilize the local retail market, and with future economic expansion likely going forward, retailers are expected to become more active. In 2013, retailers are forecast to absorb about twice as much space as they did in 2012. While vacancy rates remain above 10 percent in many of the valley’s primary trade areas, the overall retail outlook is more promising than in recent years.
Following a pre-recession wave of retail construction, development activity has been limited to just a handful of projects over the past several years. The largest project to deliver in 2012 was the 328,000-square-foot Tanger Outlet Mall at Westgate. The center came online during the fourth quarter almost entirely pre-leased and accounted for about 30 percent of the total net absorption in the West Valley in 2012. No projects of this size are expected to be delivered in 2013, and developers will remain on the sidelines for a few more years before bringing additional shopping centers to the market.
With vacancy still elevated throughout much of the valley, the development that occurs in 2013 will likely be in the form of the reconfiguration of outdated buildings, particularly in areas with promising demographics. Some of these projects are likely to pop up in the South Scottsdale and downtown Tempe areas, as well as other densely populated locations. As the local economy improves and multifamily projects are delivered, restaurants are expected to be among the most active expanding retailers.
For nearly all of 2012, local retail employment averaged 2.5 percent growth over prior year levels. This trend highlights the gradual growth in the market, which will ultimately translate to tenant demand for space. Additionally, the strengthening in the local housing market—with prices, permits and starts all recording double-digit growth rates—will support consumer spending, particularly for household items.
While the Greater Phoenix retail market continues to be challenged by high vacancy rates, investment activity is gaining momentum, supporting an increasingly optimistic view for future improvement in the sector. Although data for 2012 is not yet finalized, the number of transactions, dollar volume and the median price per square foot were all on pace to record gains of 15 percent to 30 percent compared to 2011 levels. Additionally, as buyers enter the market prepared to put capital to work to address deferred maintenance and improve spaces to get vacant blocks of space available to be leased, the overall health of the market should improve.
— Pete O’Neil, research manager, Colliers International in Greater Phoenix