CBRE: Big box leasing activity fuels Phoenix retail market

CBRE Research has released its Q2 2017 Phoenix Retail Market View and Q2 Phoenix Retail Big Box Report, and healthy levels of positive net absorption, steady big box leasing activity and a notable decline in the market-wide vacancy rate all point to a strong retail market in the second quarter of 2017. 

“With steady job growth and a hot housing market, the Valley exhibits strong fundamentals that are key to fostering a healthy retail market,” said Todd Folger, first vice president with CBRE’s Phoenix office. “When a labor market strengthens, consumers spending climbs, and retailers gain the confidence to open or expand.”

Jami Savage-Gray, first vice president with CBRE’s Phoenix office adds, “Retail follows rooftops. The Valley looks attractive to new retailers and those looking to expand in the market because of our robust residential market.”

Overall highlights from the reports include:

  • Q2 was highlighted by 458,268 square feet of positive net absorption.
  • Fourteen leases over 20,000 square feet were signed in the quarter. There was nearly 520,000 square feet of big box space absorbed in Q2 solely from new leases, not including any construction.
  • Absorption was driven by fitness, off-price and home goods/furniture retailers.
  • With Mountainside Fitness, American Freight Furniture, Marshall’s and Michael’s each absorbing big box space greater than 20,000 square feet in North Phoenix, the submarket led all other submarkets for two consecutive quarters with a total of 120,504 square feet of positive net absorption.
  • Market-wide vacancy dipped 30 basis points on a quarterly basis (60 basis points on an annual basis), ending Q2 at 8.5 percent. The significant dip in vacancy is due in part to numerous big box spaces absorbed and few spaces vacated in Q2. Healthy levels of preleasing of new construction also attributed to the drop.
  • The Valley’s average asking lease rates ended Q2 at $16.68 PSF (NNN). Lease rate growth is expected to be driven by infill development in submarkets where vacancy is limited, such as East Phoenix, Tempe, and Scottsdale, as well as new retail developments in areas with low supply.
  • Completed construction in Q2 totaled roughly 60,000 square feet.
  • Main Event Entertainment opened their third build-to-suit location in the Valley near SanTan Regional Mall.
  • Several notable projects broke ground in Q2, including the first-ever grocery store in downtown Phoenix (a 45,000-square-foot Fry’s located at Block 23), and a 60,000-square-foot project called The Block at Pima Center (comprised of shop space and PADs).
  • Roughly 40 percent of retail space under construction is in the Mesa/Chandler/Gilbert submarket and the West/Southwest submarket – two areas experiencing some of the highest levels of housing starts in the Valley.
  • At the end of the first half of 2017, 116 big box spaces totaling 4,225,536 square feet were available in the Valley. Breaking that down, CBRE Research reports 27 Class A spaces totaling 932,075 square feet; 53 Class B spaces totaling 2,062,286 square feet; 27 Class C spaces totaling 840,929 square feet; and 9 Class D spaces totaling 390,246.

“We can certainly expect further big box casualties down the road, but we view their demise as an opportunity for innovative retailers to adapt and re-invent their brands and their customer experiences to meet the demands of today’s consumers,” said Folger. “Absorption of Class A space continues to fair well, and we don’t anticipate much change.”

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