Tag Archives: metropolitan phoenix

Vacancy rate falls to single digits for 1st time since 2008

Retail vacancy rates for Metropolitan Phoenix have fallen into the single-digit range for the first time since 2008, according to a recent retail study by CBRE’s Phoenix office. While the retail market continues to improve at a more gradual pace than previously anticipated, retail real estate experts point to the 9.6 percent vacancy rate as an important milestone and a good reflection of the economic recovery.

“Single-digit vacancy is very good news for the retail sector,” said CBRE Vice President Greg Abbott, who specializes in retail real estate services. “This number is actually telling us two things: first, existing retailers are experiencing growth and new retailers are entering the Phoenix market; and second, the positive leasing and absorption activity is resulting in an improvement in market conditions such as higher rents and lower tenant concessions.”

Abbott, who partners with Vice Presidents Chris Ryan and Bill Bones, points to the fact that metropolitan Phoenix has not experienced any substantial, new retail development since 2008 as a major factor in the falling vacancy rate. Additionally, Bones notes that a significant amount of available retail space is considered functionally obsolete. This means the amount of functional, available space is even less than the numbers show.

“Slowly, but surely, retail tenants are expanding or entering the market. However, availability in the type of space retailers are interested in is growing increasingly tight,” says Bones. “Class A space, in particular, has a high barrier to entry right now in terms of supply. Tenants are very interested in class A opportunities and they are jumping on them when they come available.”

Class B space is also seeing healthy tenant demand. While these spaces may be older, the team points to their location in neighborhood or community centers, which offers great identity and stable residential and nighttime demographics, as key benefits for tenants.

Ryan says continued, pent-up demand for A and B space will cause rental rates to rise significantly over the next couple of years, particularly if there is no substantial new development. Increased rental rates could translate to high barrier to entry for some retailers.

“We have reached a point in the market cycle where existing, useable space is being absorbed, whereas five years ago we were absorbing new space as it came online via preleased tenants. Now tenants are leasing up existing space,” notes Ryan.

CBRE Research reports that the metropolitan area has not seen more than one million square feet of new retail construction delivered to the market, year over year, in the the last five years. 2014 reported merely 285,400 square feet of new product, while 2013 saw 512,000 square feet come online. Conversely, from 2000 to 2010 metro Phoenix saw an average of 5.5 million square feet of retail product delivered annually.

So, as the amount of quality space continues to tighten and retailers experience more incremental growth, new development will be inevitable. But what does new retail development look like? And what happens to the so-called “un-useable” space?

“Those spaces that have reached or are nearing functional obsolescence will have to be repurposed for new uses such as charter schools or mini-storage or redeveloped as multi-family or office,” says Abbott. “In fact, we’re already seeing those types of projects across the Valley.”

The retail team points to examples like the former East Valley Mall at the northwest corner of Arizona Avenue and Warner Road in Chandler, which is being repurposed from a mall into multiple new uses including a charter school, multi-family development as well as mini-storage. Additionally, Valley East Plaza, located at the northwest corner of Southern Avenue and Longmore Road, has been demolished to make way for the new Centrica office project. The shopping center, which formerly housed Bed, Bath & Beyond, Petco and Circuit City, sat vacant for more than six years before new ownership had it repositioned for office development.

As for new development, Abbott says developers today are still fairly conservative and most want a committed tenant or a solid anchor or shadow anchor prior to commencing the project.

New construction that will come online this year includes 132,000 square feet at Fashion Square Mall that’s going to be a new Harkin’s Theater and Dick’s Sporting Goods location. A 75,000-square-foot neighborhood center called Silverstone at Pinnacle Peak is also under construction and will be anchored by a Sprout’s grocery. Scottsdale Quarter, which has already established itself as a retail hub, also has an additional 30,000 square feet that will come online in its new mixed-use building.

Going forward, the retail team says retail market participants will continue to keep a watchful eye on improving fundamentals and tightening supply of space.

“If vacancy in the A and B spaces continues to fall, as it has in recent quarters, development really is inevitable,” says Abbott. “I think this is an interesting point in the cycle and tenants and landlords alike could see some really great opportunities in the coming quarters.”

The Brittany

CBRE closes more than $6.4M in transactions

CBRE has negotiated the following multi-family sales transaction(s):

  • Asset Preservation, Inc. from Los Angeles, California has purchased Desert Green Apartments, a 16-unit multi-family property located at 16243-16401 North 31st Street in Phoenix, Ariz., from Dramms, LLC of Poway, California. Brian Smuckler and Jeff Seaman of CBRE’s Phoenix office represented both the buyer and the seller in negotiating the $700,000 transaction.
  • Leger Properties III, LLC from Eugene, Ore. has purchased Glenview Estates apartment complex, a 32-unit multi-family property located at 7002 North 76th Avenue in Glendale, Ariz. from George Loriente and Suzanne Loriente of Harbor City, Calif. Brian Smuckler and Jeff Seaman of CBRE’s Phoenix office represented the seller in negotiating the $1.9 million transaction.
  • 29SC Brittany, LLC., from Chicago, Ill. has purchased The Brittany apartment complex, a 92-unit multi-family property located at 708 North Country Club in Mesa, Ariz. from Pristine Estates, LLC of Tumon, Guam. Brian Smuckler and Jeff Seaman of CBRE’s Phoenix office represented both the buyer and seller in negotiating the $3,189,680 transaction.
  • David Eitches and Sammy Aflalo from Beverly Hills, California have purchased the Villa Schiliro apartment complex, a 21-unit multi-family property located at 3029 East Paradise Lane in Phoenix, Ariz., from Stepan S. Bebekian and Chake S. Bebekian Family Trust of Phoenix, Ariz. Brian Smuckler and Jeff Seaman of CBRE’s Phoenix office represented both the buyer and the seller in negotiating the $646,000 transaction.
People in lab coats working in a wet lab office environment

East Valley Energy: Leaders In Business, Government And Education Are Working To Keep The Region Growing

The East Valley has experienced unprecedented growth since 1980. With nearly 1.7 million residents and more than 54,000 businesses, community and business leaders alike are looking to the future to prepare for greater global competition. They also are working to sustain a strong and vital economy that will protect and preserve the quality of life that exists in the East Valley’s 17 communities. In this East Valley report, Arizona Business Magazine looks at some of the major economic engines powering the region.

Arizona State University
Arizona State University, the largest public research university in the United States, has been contributing to East Valley and state economic development efforts since 1885, when ASU was initially founded. The university’s core focus is training the labor force and turning out college graduates that will stay and work in Arizona.

ASU is also involved in community efforts, such as bringing the Insight Bowl to Tempe. In addition, ASU Gammage is a major driver of people to local restaurants, stores, parks and stadiums. The university’s research and development efforts produce spin-off companies, as well as attract those that want to be near a research university. The perfect example is SkySong. Scottsdale raised $100 million to partner with ASU and create the innovation park that currently has more than 40 small, startup companies from 12 different countries.

“SkySong is a global portal for metropolitan Phoenix, and companies are attracted to it because they want to be near the university,” says Virgil Renzulli, ASU’s vice president of public affairs. “ASU is one of 100 universities in the country that turn out new knowledge.”

At ASU’s Polytechnic campus in eastern Mesa, the university brought in some of the best solar researchers in the country to work in the research lab.They also have alternative energy research programs in place to look at creating energy from light, and creating regular fuel and jet fuel from algae and bacteria.

“Working with East Valley cities and organizations is important because so many things today need a group effort,” Renzulli says. “It’s all part of the modern knowledge economy infrastructure. ASU wants to see things improve. We are good citizens and the majority of the time we look at what’s good for the East Valley, as well as the state.”

The city of Chandler
With companies moving less nowadays, the city of Chandler is planning to grow its own companies in hopes of diversifying and stabilizing the community’s job market, as well as positioning the East Valley in the global marketplace.

Chandler’s new venture is a wet lab incubator called Innovations, and it’s aimed at young, startup science and technology companies seeking move-in-ready lab space. Innovations is located in a 40,000 square foot former Intel building on McClintock Road and Chandler Boulevard. Space will be available for lease starting May 1. Christine Mackay, Chandler’s economic development director, said Innovations would contain everything — soup to nuts — that a young startup company needs to work and succeed.

Chandler City Council approved a 10-year lease on the building in September, along with $5.7 million to renovate the building. “Many young companies start with a grant or on a shoestring budget, so traditional commercial space is too expensive,” Mackay says. “They need a partnership to succeed until they can commercialize on their own. They could find cheap space without us of course, but they wouldn’t have access to things like business managers and attorneys to help them succeed and move forward.”

Studies show that 80 percent of small companies that start up through incubators succeed — four times the average of other small business startups. Although Chandler has yet to market the incubator, it has received a lot of interest from entrepreneurs and is already 25 percent pre-committed. ASU has expressed interest in leasing space, as well, Mackay says.

“Right now, we’re in the process of forming a team of experts with backgrounds in renewable energies, engineering, biosciences, applied materials, etc., to help us pick companies with the ability to succeed,” Mackay says. “Our hope is that those companies stay in Chandler long term.”

Phoenix-Mesa Gateway Airport
Allegiant Air began offering passenger service at Phoenix-Mesa Gateway Airport in 2007, with two aircraft serving eight cities. Today, the airline serves 20 cities with five aircrafts, and this year more than 650,000 passengers are expected to pass through the terminal. In the last two years, Cessna and Hawker Beechcraft have both opened maintenance and repair facilities near the airport. Collectively, more than 35 aviation companies operate at the airport, generating more than $251 million in annual economic activity.

“The work we did in 2006 put the wheels in motion for the Phoenix-Gateway area,” says Roc Arnett, president and CEO of East Valley Partnership. “We make things move and shake to improve business and quality of life in the East Valley.”

William Jabjiniak, director of economic development for Mesa, considers EVP a great partner.

“We look to East Valley Partnership for leadership and policy direction that affects positive change for Mesa,” he says. “It’s also important for the East Valley to have a unified voice and that’s what EVP is for us and our neighboring cities.”

Mesa, which is just shy of 500,000 people, is currently focusing its economic development efforts on four key industry segments: health care, education, aerospace and tourism. The city’s economic development team also is working diligently with existing businesses in the community.

“Economic development is based on relationships, which we are trying to grow with existing businesses and the brokerage community,” Jabjiniak said. “About 80 percent of growth in a community comes from existing businesses, so essentially they are the bread and butter.”

One of Mesa’s biggest retention projects over the last several months has been hanging onto the Chicago Cubs. The Cubs have been holding spring training in Mesa for more than 50 years and provide the state with an annual economic impact of $52.2 million. In late January, officials with the Cubs announced the team would stay put in Mesa — if a new, multimillion-dollar stadium and practice complex is built.