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New Jobs Spur New Retail Growth in Phoenix

The Phoenix metro economy continues to outpace the nation in job growth, even though 2014 has taken on a slower pace than last year. Much of the 2013 job growth occurred in education, healthcare and financial services. The latter has been a particularly strong growth industry for Phoenix, with 7.2 percent job growth in 2013, versus overall job growth of 2.8 percent. Overall job growth for Phoenix is forecast to be 3.2 percent this year.

Despite the job growth and the cautiously optimistic outlook from most within the retail industry, new retail development is still very limited. Unlike in the past when the anchor was a traditional grocery or discount store, much of the development today is anchored by non-retail traffic generators. This includes office and apartment developments, such as new retail space planned for SkySong at Scottsdale and McDowell roads. There are also several ground-floor retail opportunities at the newest mid-rise apartment developments around Scottsdale Fashion Square, Arizona State University and the area on the northern edge of Downtown Phoenix near Roosevelt and Central.

Additional retail is planned adjacent to the newest Village Health Club at Ocotillo/Alma School Road in south Chandler. Retail and hospitality developments have been proposed for the Chicago Cubs’ new spring training facility in Mesa, as well as the Peoria Sports Complex, where the Seattle Mariners and San Diego Padres hold their spring training.

The retail industry is also leaning toward infill redevelopment, such as De Rito Partners’ proposed redevelopment of the 150,000-square-foot center currently anchored by Ace Hardware and Food City at the southwest corner of 32nd Street and Indian School; the recent announcement of the new Walmart Supercenter at the 40-year-old Metrocenter Mall near I-17 and Peoria Avenue; and the new Fry’s grocery store being developed on the site of the former Sundome Center for the Performing Arts in the heart of Sun City West.

There are very few new grocery- or discount store-anchored projects in the works, with the exception being several WinCo Foods and Sprouts stores under development across the metro area. These regions generally have a small amount of shop space and pad sites available.

On the construction side, pre-leasing is still very challenging in general, compared to the peak of the market several years ago. Tenants don’t want to commit until they know the project is definitely being built, which leads to a Catch-22 for the developers, who generally want or need the tenants signed before they build.

The biggest new retailer to the market is American Furniture Warehouse, which has its second store under construction in Glendale, after the first one opened in Gilbert. That follows Conn’s HomePlus, which has blanketed the market with seven stores over the past few years. Colorado-based Natural Grocers by Vitamin Cottage has begun looking for sites in the market as well. Epic Thrift is active and will soon open its sixth store, while Dollar Tree continues to infill its market coverage.

The most active category is still fast casual restaurants. The biggest wave is occurring in the pizza segment, with concepts like Pizza Five85, Blaze Pizza, MOD Pizza, Fired Pie and Pizza Me blitzing the market.

As long as the jobs keep coming, Phoenix’s retail market is expected to see continued rent and occupancy growth and eventually a cautious return to development based on real demand versus the speculation of the past.

By Alan Houston, First Vice President at SRS Real Estate Partners in Phoenix. This article originally appeared in the August 2014 issue of Western Real Estate Business magazine.

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