With all the changes occurring in retail over the past decade, the industry, as a whole, is being transformed before our eyes. These shifts have impacted how new retail development is taking place throughout the Phoenix area. It is also driving a significant change to how retail developers will operate over the next decade.
Dave Cheatham, Velocity Retail Group
The operational changes are dramatically affecting the prototypes of retailers. These changes are making it necessary for some retailers to relocate from an inline space at the back of a center to an outparcel with street-front visibility. It becomes even more complicated as more and more tenants are demanding a drive-thru. Panera Bread, Chipotle and Starbucks are just a few examples of retailers that have revised their real estate requirements to accommodate a drive-thru. Many retailers are also consolidating their total number of stores or downsizing their traditional physical footprint, which is also impacting centers. Some chains have even waved the white flag and closed their business altogether.
These changes are driving the design of new retail projects throughout Phoenix. While the traditional configurations of regional malls, power centers and neighborhood shopping centers will always be a staple, the retailer’s shift to be up front and center on the street takes us back to retailing before the 1970s. This model was common on Main Streets and major retail boulevards across the U.S. What is further accelerating this process is the limited creation of new box tenants that were so prevalent throughout the late 1980s and ‘90s, which helped anchor new developments. Many experts believe this trend will lead to the actual decline in the total square footage per capita of retail space in the future.
Rising construction costs and land prices, coupled with a decrease of big box users, has created a design shift for new developments. The majority of retail expansion in Phoenix has shifted from the traditional design to free-standing, multi-tenant buildings and pad farms for the first time ever. The retail acreage that was formerly used for major tenants in the rear of the parcel is often down-zoned to other land uses, including residential, single-story rental communities, dense multifamily units and self-storage facilities, to name a few.
Developers and retailers who are nimble and able to shift with this latest development cycle will continue to thrive in the next decade.
— By Dave Cheatham, president, Velocity Retail Group. This article first appeared in the August 2019 issue of Western Real Estate Business magazine.