— By Patrick Dempsey, senior managing director of JLL Capital Markets —
The Phoenix retail capital markets environment is showing signs of resilience in the face of current economic conditions. While the market has experienced a period of lower transaction volume, recent drops in interest rates have begun to bridge the gap between buyer and seller expectations, potentially paving the way for increased activity.
Notably, Phoenix stands out with impressive positive rent growth, recording the highest rate at 7.4 percent among major metros and Sun Belt markets. Phoenix’s robust employment market, especially in the semiconductor sector, continues to be a major advantage. The city boasts a strong base of major employers, contributing to its ongoing economic vitality.
Investor demand remains concentrated on grocery-anchored properties and premium retail locations, highlighting the enduring value of strategically positioned assets. This trend is especially pronounced in high-growth submarkets. For example, the Southeast Valley is experiencing significant suburban and residential growth, driving the development of new grocery centers to serve the expanding population. Similarly, Northwest Phoenix with areas like Peoria and Glendale are seeing strategic investments from grocers anticipating future population growth.
Looking ahead, there’s increasing optimism for a stabilization of retail capital markets transactions in the latter half of the year, potentially leading to increased investment activity. This sentiment is bolstered by lower-than-expected inflation rates, as well as anticipation surrounding potential Federal Reserve rate cuts. These macroeconomic factors could provide a more favorable environment for both buyers and sellers, potentially unlocking pent-up demand for retail assets.
While the Phoenix retail capital market has faced challenges in the first half of 2024 with higher interest rates and higher costs of construction, the underlying fundamentals remain strong. The combination of population growth, economic diversification, strategic submarket development and adaptability to changing retail trends positions Phoenix favorably for continued growth and investment in the retail sector.
This article was originally published in the October 2024 issue of Western Real Estate Business.