Employment, E-Commerce, Experiences Drive Phoenix’s Retail Market

by Taylor Williams

Ecommerce and generational shifts in spending patterns have spawned discussions regarding the health and future of retail. However, Phoenix has proven to be one of the most resilient and dynamic retail markets in the country. This resilience is a product of corporate and residential migration from gateway markets due to increasing regulation and costs of living. Maricopa County has been named the fastest-growing county in the country for three years straight by the U.S. Census Bureau, and is forecasted to add another 500,000 people by 2023. This population and income influx has the Phoenix retail market bucking national trends.

Joe Doucett, Newmark Knight Frank

Consumer sentiment remains at peak 2006 levels despite political uncertainty, without the artificial run-up in home values we experienced leading up to the financial crisis. Average vacancy rates have lingered in the high 6 percent range with active retail construction remaining tempered at around 1 million square feet. This is compared to more than 11 million square feet in 2006. Vacancy may fall into the mid- to high 5 percent range over the next two years — where it was in 2006 — barring any extreme economic events. Triple-net rents have averaged $16.30 per square foot in 2019 and have grown 4 percent year-over-year since 2017. This leaves plenty of runway to the $20-per-square-foot peak we experienced in 2007.

There are two interesting trends impacting Phoenix’s retail market. The first is a wave of corporate campuses changing the retail landscape. Blue chip companies, including Nationwide, Deloitte, Northrup Grumman, American Express, USAA and Allstate, have made hard commitments to build or significantly expand their footprints by hundreds of thousands of square feet and thousands of personnel in unique corporate campuses. These campuses have integrated or spurred new mixed-use development in the Phoenix metro area. These jobs generally have above-average market salaries and benefits, and are filled by people relocating from major gateway markets.

These professionals are bringing with them preferences for more live-work-play environments, mixed-use and higher-quality retail, which brings us to the second trend. This is a shift toward concepts offering consumers new experiences that are internet-resistant. The changing landscape of point of sale for commodity goods is creating opportunities for newcomers offering unique, in-person experiences to find footholds and flourish. For example, in addition to traditional pizza options like Domino’s or California Pizza Kitchen, consumers now have a growing number of alternatives, such as Fired Pie, Blaze and MOD Pizza.

We see niche players like specialty fitness classes, custom-made ice cream and activity-based concepts thriving in submarkets that previously featured mostly legacy retailers. With the blue chip commitments to build and expand and the influx of experience-based concepts, it is a very exciting time to be a retailer in Phoenix.

— By Joe Doucett, senior managing director, Newmark Knight Frank. This article first appeared in the January 2020 issue of Western Real Estate Business magazine. 

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