Well, 2012 has come to an end, the fiscal cliff has been averted for now and the presidential election is behind us. Despite it all, retail sales in the Arizona market seemed to fair reasonably well last year, albeit with markdowns acting as the trigger point for consumers to make those last-minute holiday purchases. With an active 2012 under our belts, the Phoenix market is hoping to outdo itself this year with leasing activity as retailers gear up for cautious expansions, downsizes and relocations. The housing picture for Maricopa County is terrific in terms of inventory being absorbed. Homebuilders are building out improved lots and creating new subdivisions. It is likely that new housing permits, which were positive in 2011, will result in more than 12,000 new homes in 2013. This number should increase steadily for the balance of the decade. This is not to indicate that new retail development will be built anytime soon, but that these numbers may create more of an opportunity to fill existing retail space that has a current vacancy rate of 11.7 percent. Last year, we experienced a positive absorption of 1.03 million square feet, according to CoStar. Therefore, unless a significant amount of …
Market Reports
The investment climate for the Phoenix office market is poised to provide compelling acquisition opportunities in 2013. Favorable job growth, improving market fundamentals and assets available at discounts to replacement costs are expected to enhance asset appreciation over the next several years. Phoenix has historically generated strong job growth after recessionary periods. Recent data supports this trend, as Metro Phoenix added 50,700 jobs over the past 12 months, according to the Bureau of Labor Statistics’ preliminary November 2012 figures. This job growth has lowered the unemployment rate to 6.9 percent as of October 2012, well below the national rate of 7.9 percent. The area is expected to continue adding 50,000 new jobs annually through 2015, driving vacancy rates downward and creating upward pressure on rental rates and property values. Employment growth in professional and business services, and in the financial sector, is of chief importance as a demand generator for office space. Phoenix has also benefited from strong population growth. Metro Phoenix is expected to grow at an average rate of 2.6 percent per year over the next 10 years, a pace that is more than twice that of the national average. Affordable housing, a business-friendly environment and a well-educated …
The Metro Phoenix industrial market has been climbing its way to recovery for the past few years, but the activity of 2012 showed the strongest signs of diversified activity of a healthy marketplace. While overall net leasing was down slightly from 2011, the city benefitted from an abundance of medium and large transactions reflecting many types of industrial users leasing and buying throughout the city. This diversity indicates overall health — and not just in our traditional big box arena. In several strong submarkets, we saw owners pushing back on users’ terms due to improved portfolio and individual property activity. The city’s big box hub of Southwest Phoenix experienced continued strong activity with a variety of notable leases and property sales. We saw a shift to speculative construction and actual groundbreakings taking place on multiple projects. Phoenix has more than 2.6 million square feet of industrial space under construction, with more than 2.2 million of that being situated in the Southwest area. Overall net absorption in that area totaled more than 1.3 million square feet in 2012, leading to a shortage of available large facilities following three years of top eight national leasing and sales activity. The overall net absorption …
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 …
The Phoenix industrial market continues its convincing march toward recovery by reaching several milestones. As a more resilient sector during the recession, the industrial market was not plagued with as much bad debt and CMBS loan defaults as other sectors. Industry experts concluded the industrial sector would recover faster as favorable economic conditions such as durable goods orders and manufacturing output favored the industrial market early. The sector has posted 10 consecutive quarters of positive absorption dating back to 2010. Vacancy rates have returned to levels not seen since the third quarter of 2008. This positive direction reflects a rebound in U.S. exports, consumer spending and online purchasing, which has led to a high demand for large distribution space in which there are few options in Phoenix. Confidence in the industrial market – and in Phoenix in particular – has brought renewed interest in developing new projects. Most new construction is a combination of build-to-suit manufacturing space and several new speculative projects to meet the demand for distribution space of more than 100,000 square feet. Industrial investment sales transaction velocity remains quite strong even though it’s declined from last quarter’s significant level. However, price per square footage has increased once …
It is important to understand that the mid-2000s did not reflect a sustainable level of industrial leasing activity. Real estate in general — and Phoenix in particular — has always been subject to cycles. The past few years have seen a flight to quality with tenants moving from older buildings to newer, more modern facilities. They were able to lease new space at bargain rates that were at or below what they were paying for their older facilities. The initial signs of an improving economy have already manifested themselves in an industrial demand increase. This trend is expected to continue and gradually gain momentum, albeit not along the same steep trajectory of recent growth patterns. At the end of the first quarter of 2012, the national industrial market consisted of 289,117,054 square feet. It currently has 39,089,600 square feet of vacant space. At the beginning of 2011, the industrial vacancy rate stood at 15.5 percent. With 6,993,112 square feet of positive net absorption in 2011 and 302,468 square feet in the first quarter of 2012, the vacancy rate now registers at 13.5 percent. Despite positive absorption, the overall average rental rates have seen little improvement over 2011 with the exception …
Employment and population growth is spurring apartment demand in Phoenix, encouraging developers to ramp up construction. Although Class A rents are above mortgage payments on a median-priced home, many potential homebuyers will be unable to compete against investors that purchase bank-owned houses to operate as rentals. The metro is a target for these well-capitalized buyers, as home prices have dropped nearly 60 percent since the peak, while the local economy is gaining traction. By the close of this year, more than 80,000 positions will have been recouped in Phoenix, marking three consecutive years of job gains. The rental pool is poised to grow as many lower-priced homes are purchased by cash buyers and residents contend with qualifying hurdles due to short employment histories. As a result, strong apartment demand will enable most operators to boost rents to all-time highs, pushing residents down the quality ladder. Distant headwinds are starting to form, however, as builders recently broke ground on multiple projects that will add thousands of inventory units over the next few years. This, combined with competition from houses employed as rentals, could mean apartment owners may face significant competition as early as 2013. A sharp rise in leasing activity during …
The metropolitan Phoenix market differs from other western cities in terms of its affordability of housing, from first-time buyers to retirees. As the market comes out of this recession, Phoenix is poised with available, affordable residential and commercial properties. Also, there still is plenty of land area in which to expand, unlike our counterparts, who are bounded geographically from growth. Columbus, Ohio-based Glimcher Properties is developing the $270 million Scottsdale Quarter, a mixed-use, destination development that opened its first phase in March 2009. Phase II is scheduled to open this March. Located at the southeast corner of Scottsdale Road and the Greenway-Hayden Loop in the North Scottsdale submarket, the entire three-phase project totals nearly 1.25 million square feet and features retail, entertainment, residential/hotel and office components. While many other new Phoenix-area developments have been put on hold or canceled altogether, Scottsdale Quarter’s development continues. Located across from Kierland, Glimcher’s major infill development is able to piggyback on the first successful lifestyle center on the West Coast. Currently, Scottsdale Quarter has attracted national tenants new to Arizona, such as Williams-Sonoma Home, H&M, Brio Tuscan Grille, Oakville Grocery and west-elm. Others tenants, such as Gold Class Cinemas, Nike and Sunglass Hut, are …
If there’s any good news to be had in today’s challenging economic climate, perhaps it’s that now is an opportune time to be an apartment investor in metropolitan Phoenix. While the credit crunch has undeniably put a dent in sales activity — the difference between $52 million so far this year compared to $600 million for all of 2008 and $3.5 billion during 2007 — interest from well-capitalized private investors hunting for bargains among the rising selection of lender-owned properties for sale may provide a boost moving forward. The number of distressed properties has crept into the double digits since early 2009. Offerings in good locations, where the pricing reflects the market correction, can easily garner 15 to 20 offers, on par with bidding activity occurring even during the best of economic times. Active investors are primarily individuals and private capital sources searching for positive leverage and high returns. Meanwhile, REITs and advisors looking to firm up balance sheets, developers needing to pay off maturing construction loans, and lenders hoping to unload distressed properties make up the bulk of sellers. Another piece of good news: tighter lending requirements, coupled with a downturn in population and job growth, have effectively put …
The Phoenix retail market expansion has slowed down considerably as it experiences the continued effects of the economic downturn. A decline in consumer spending, negative job growth and a housing market still struggling to recover will keep development to a minimum while vacancies increase in existing centers. At the end of 2008, the valley’s vacancy was 10 percent and should rise above 11 percent during 2009. A return to record vacancy rates seen during the 1980s is unlikely because of the slowdown in construction. In 2008, there was roughly 6.5 million square feet of new retail space delivered, but in 2009 planned projects will be put on hold. One reason is there is no pre-leasing being done, and in many cases banks require guaranteed tenants before they will consider construction loans. In response, developers are changing their focus from new ground-up development to infill and redevelopment properties. Expect more national, regional and local retailers to close during 2009. The list of major store closures in 2008 included national retailers Mervyn’s, Linens ‘n Things and Circuit City. There is still a short list of national retailers looking for space in the valley, including Wal-Mart, Fresh & Easy, Fry’s and Dunkin Donuts. …