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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 sublease space is returned to the market, the vacancy rate should continue to even out. Fortunately, there were some notable developments that ushered in the New Year in Phoenix. They included the Tanger Outlet Center at Westgate, as well as the Gila River at Wild Horse Pass near I-10 and Maricopa Road. Gila River is being developed by Simon Property Group and is scheduled to open soon.
Retail leasing activity in 2012 was at the highest volume the market has experienced since 2007, and 2013 should be even better. Much of the activity revolved around restaurants and fast casual chains, but many retailers stepped up their expansion efforts after sitting on the sidelines for the past few years.
The dollar and discount stores were very active, along with a plethora of new and existing fitness centers that took spaces ranging from 5,000 square feet to 45,000 square feet. Many of the junior box retailers are resizing their stores not only to meet market availability, but also to reduce their sizes. They are doing this to accommodate the ever-changing retail product demand and to compete with online retailers.
The urgent care market has also produced a number of new facilities primarily in retail buildings and shopping centers. That trend will likely continue as other medical providers, such as CareMore, which recently leased a former Cost Plus World Market in Tucson, follow suit.
As the homebuilding industry continues to seek more suburban locations, the need for new retail will resurface. However, that is not likely to occur this year or next. Infill locations are on most retailers’ radars, as are several mixed-use projects, such as RED Development’s CityScape. This retail, office and hotel project seems very in-demand in Downtown Phoenix and is so far proving to be successful.
— Michael Polachek, executive vice president, SRS Real Estate Partners