Author: Dave Cheatham, President, Velocity Retail Group, LLC
As we are nearing the end of 2013 there have been several positive trends and factors that have influenced the Phoenix retail real estate market. These factors are being recorded in economic improvement such as job growth, housing prices, and personal income increases as well as the retail real estate market’s increased leasing activity.
Velocity Retail Group has recorded a strong increase in big box leasing, with an increase of over 20% above last year. Our research department is predicting this trend to continue into 2014 and 2015. This increase will be evident by increased activity from many retailers who have been on the side lines for the past 4 or 5 years and are now gearing up to expand their store count. Value retailers, who have been very active during this past recessionary cycle, are still expected to show strong activity in the next twelve to twenty-four months. In addition, the Phoenix market should experience new retail concepts announcing expansion plans both regionally and nationally. These concepts have been unable to expand the last five years due to the economy, but they are now gearing up for growth. Velocity Retail Group is projecting strong leasing activity for year-end 2013 with nearly 2 million square feet absorbed. This amount of absorption will drive the vacancy down close to single digits by year-end.
This is supported by the 3rd quarter retail numbers from Velocity Retail Group’s research department when analyzing the big boxes in our market (those that are over 10,000 square feet). In fact, a greater number of big box deals have been completed during 2013 than we have had in four years. For 2013 there have been 39 big box deals completed. If this pace continues through the rest of the year we will be 20% above the leasing of last year, and nearly 75% above 2011. We are now at 297 vacant big boxes throughout metropolitan Phoenix.
We are forecasting a continued slow and steady improvement in our vacancy with the vacancy rate in 2014 breaking into the single digits. Leasing activity for the year is over 1.5 million square feet and on track to reach over 2 million square feet by year end.
Each of the regional areas in metropolitan Phoenix has shown significant improvement in vacancy since the beginning of 2013. In fact, at the start of the year all of the six regional trade areas had double-digit vacancy. Now, as of the 3rd quarter, four of the six regional areas have single-digit vacancy.
With three quarters of the year behind us we continue to see increased improvement in several key benchmarks for the Phoenix area:
- Job Growth – Arizona heads the list of best states for expected job growth according to an article published by Forbes
- Housing Prices – continued increase in the median home price, now at $192,000, which is a 30% year-over-year improvement
- Personal Income – up over 5% since 2012
- Retail Sales – up over 5.5% from 2012
These indicators solidify our projections of continued improvement in the retail real estate market in Phoenix. A rebound is under way and 2014 will be a pivotal year in laying the foundation for improved future growth, expansion and economic prosperity for Arizona.