Creation sold 10 West Commerce Park in Buckeye, home to Funko’s U.S. distribution center, to Cohen Asset Management for a record $130 million, which is the highest gross industrial building sale ever achieved in the city.
5 Metro Phoenix hot spots for real estate development
Remember Bachman-Turner Overdrive’s 1983 hit “You Ain’t Seen Nothin’ Yet?” You ain’t seen nothin’ yet. B-b-b-baby, you just ain’t seen n-n-nothin’ yet? It’s one of those catchy, unforgettable lyrics you can’t shake. And, it’s a perfect musical representation of the growth happening throughout Metro Phoenix, especially when it comes to hot spots for real estate development. Just when you think you might have seen all there is to see in development expansion and innovation, the Valley seems to unveil a new surprise.
NAIOP members and industry leaders have identified some of the hot spots for real estate development and commercial real estate (CRE) activity in the Valley. From Mesa Gateway and Queen Creek to North Scottsdale, Buckeye and Goodyear, you ain’t seen nothin’ yet!
Market watch: Industrial and retail rising
Overall, commercial development in Metro Phoenix is thriving. Despite the pandemic dampening certain sectors, such as office activity, other markets have recovered and are seeing momentum. When NAIOP conducted its recent appraisal of Valley hot spots, it identified retail and industrial as two high-activity CRE segments throughout Metro Phoenix.
As far as the industrial outlook, Rusty Kennedy, managing director for Stream Realty, anticipates that manufacturing will continue to dominate throughout many regions in the Valley. “I think there are a couple of things driving [manufacturing activity],” he says. “Obviously one is the availability of labor, skilled labor and affordability. We’re a right-to-work state, which is a competitive advantage. We have the labor and it’s affordable. Something that we point out is that I believe we’re graduating around 50,000 students a year between our colleges, universities and other institutions.”
In the East Valley, speculative industrial offerings are trending.
“In years past, Mesa’s inventory of available quality industrial space was small and large-floor-plate industrial space was nonexistent,” explains Bill Jabjiniak, director of economic development for the City of Mesa. “This had been a major obstacle, but over time, the City of Mesa has worked closely with developers to encourage a better mix of speculative industrial product, including large floor plates that would attract larger companies. With the new product coming online, companies large and small can get operational much more quickly than in years past.”
Adds Jenna Borcherding, director of development for VanTrust Real Estate, “We’ve seen a significant amount of larger scale speculative development in recent years which has placed Phoenix in the upper echelon of industrial markets in the country,” she says. “I expect the growth in the industrial sector to continue, as the Phoenix market offers an affordable cost of living coupled with a young and diverse talent pool.”
As far as retail movement, Alberto Caballero, transaction manager at Western Retail Advisors has seen a surge in restaurants and high-end stores, particularly in Goodyear and North Scottsdale. “Restaurants in Goodyear along McDowell perform very well,” he says, “and Scottsdale continues to be a great market for high-end restaurants and retailers. You’re starting to see more concepts enter the market with their one and only store in North Scottsdale. Etta at Scottsdale Quarter and All Birds coming soon to Kierland are great examples.”
Also trending in the retail market, according to Laura Ortiz, president of Evergreen, is an increase in large-scale development, with Costco being a prime example with its two new developments in Queen Creek and Buckeye.
Additionally, Ortiz notes that because consumers have become accustomed to — and enjoy the ease of — quick access and delivery of goods as a result of the pandemic, the presence of drive-thru and pick-up window-based retail options is on the rise.
But industrial and retail aren’t the only agile sectors within current CRE hot spots. Take a closer look at the trends taking place in Mesa, Queen Creek, Buckeye, Goodyear and North Scottsdale and why these cities are scoring major development deals.
All-encompassing movement in Mesa Gateway
It’s certainly no secret that Mesa Gateway has been an economic generating machine for Mesa and surrounding areas. According to Mesa AZ Economic Development, upwards of 6,600 people are employed in Mesa Gateway across a myriad of diverse organizations and industries. Mesa-Gateway Airport alone yields $1.8 billion in annual earnings to the local economy. And, there are plenty of reasons why, including transaction privilege tax exemption, property reclassification and Foreign Trade Zone (FTZ) benefits to name a few.
“Mesa’s Gateway Area is an important economic driver for Mesa and a hot spot for international companies, aerospace/aviation and defense firms, large industrial users and high-tech manufacturers such as electric vehicles, automotive components and semiconductors,” Jabjiniak explains.
Among Mesa-Gateway’s aerospace/aviation inhabitants: Able Aerospace Services, Boeing, Cessna/Citation, Embraer, Honeywell, Lockheed Martin, MD Helicopters, Nammo Talley and Northrop Grumman. And, Mesa’s Eliot Road Technology Corridor is a treasure trove for tech companies and data centers including Apple’s $2 billion global command center.
Further investments are only propelling activity throughout the Mesa-Gateway region, and will likely continue to do so for some time.
“Mesa-Gateway Airport received $14.4 million dollars to build a new modern terminal,” Caballero says. “This is a big win for the East Valley. Recently, an OHSO brewery and Panera have been added to the airport but more dining will come in the fall with Macayo’s and Infusion Coffee & Tea Crafters.”
Adds Ortiz, “The growth of Mesa Gateway Airport for regional passenger travel and international commerce via the Sky Bridge agreement, the extension of SR 24 and ASU’s Polytechnic Campus have been key factors in the robust economic growth of the area. Well-conceived quality master-planned residential developments, like Eastmark and Cadence, have created desirable communities which provide a strong base for the growing list of employers around Mesa Gateway.”
All hail Queen Creek
In Queen Creek, rapid residential growth has spurred rich economic outcomes. “Retailers who were slower to expand in the far East Valley following the Great Recession are now catching up with the residential growth to provide services in now underserved areas,” Ortiz says. “Queen Creek also benefits from its ability to provide large-scale development opportunities to major employers — like LG — which spurs surrounding development.”
Especially active locations, according to Caballero, are anchored at the corners of Ellsworth and Rittenhouse Roads and Ellsworth and Queen Creek Roads. The first has been a bustling locale for several years. “This intersection draws from San Tan Valley because it has the closest power center in Queen Creek Marketplace,” he says, “that consists of retailers like Target and Harkins to popular food users like In-N-Out and Chick-fil-A. It’s also the home to the only Sprouts within nine miles or an 18-minute drive.”
The Ellsworth and Queen Creek Roads crossing will soon house the furthest Costco location (in Metro Phoenix) in the Southeast Valley. And just four miles to the north, Caballero explains, is the 320-acre Bell Bank Park. “With the number of yearly sporting events and people visiting from across the country,” he says, “there are discussions for the land slightly north to bring hotels, restaurants and other entertainment opportunities to capitalize on the tourism to Queen Creek.”
All eyes on Buckeye
Buckeye rapidly transitioned from a sleepy town to a booming city. In fact, the far west metropolis is now listed as the No. 1 fastest-growing city in the nation, according to the U.S. Census Bureau.
“Increased population and rooftops have caused each sector to see increased growth,” says Joanne Osborne, Arizona state representative. “We all know retail follows the rooftops — transportation corridors have brought the industrial sectors, and the recognition of a talented, educated workforce in the West Valley has spurred the development of office space.”
Kennedy highlights several of Buckeye’s most recent development achievements, by pointing out the “big wins with Five Below, Funko, KORE Power and Ross, among others.”
“And now,” Kennedy adds, “we’re starting to see a lot of groups positioning and get ready for what we believe is going to be a pretty big boom out in Buckeye. We’ve spoken to the town of Buckeye several times and they’re ready for it.”
Caballero foresees a significant opportunity for retail expansion on Buckeye’s horizon with the biggest future growth occurring at the intersection of Interstate 10 and Verrado. “A recent announcement of a large shopping center is coming to the northeast corner of I-10 and Verrado and Vestar will be doing the development on the project,” he says.
On top of the city’s success in retail, office and advanced manufacturing is the arrival of new healthcare facilities like Abrazo and Banner announcing plans to build large-scale medical campuses in Buckeye (I-10 and Verrado Way).
An essential element that all experts agree is fueling Buckeye’s growth is solidly planned and executed transportation and infrastructure.
“With the unprecedented industrial development that has taken place along Loop 303, now is Buckeye’s time to shine,” Borcherding says. “As more and more California companies look to leave the state due to cost, congestion and regulations, Buckeye is well positioned as the ‘first stop’ in town. Availability of land, access to I-10 and the 85, and the growing number of rooftops are certainly factors spurring CRE interest in the submarket.”
All is good in Goodyear
Right next to the fastest growing city in the nation resides Goodyear — one of the top 10 fastest growing cities in the nation and the second fastest growing city in Arizona. And, much like its West Valley neighbor, Goodyear’s development is soaring in all sectors.
“The density for this area is coming and it’s coming fast,” Caballero says. “Along Mcdowell between Estrella Parkway and Bullard, retailers have become really active; 10 years ago, the furthest west national retailers wanted to go was 99th and Mcdowell in Avondale but now everyone wants to extend their presence even more west and have a location in Goodyear.”
Adding to Goodyear’s density are several multifamily projects. “There are currently four to five apartment complexes and rent-to-own projects under construction in the area, including a future luxury apartment Broadstone just north of Goodyear’s City Center,” Caballero says.
Healthy growth in North Scottsdale
North Scottsdale has made its mark as a centralized operations hub for businesses across the nation and globe, and will continue to do so heading into 2023 and beyond.
“North Scottsdale is a dynamic area of the Valley that has long appealed to corporate headquarters,” Borcherding says, “because of the surrounding amenities, skilled workforce and proximity to high-end residential.”
Companies such as Nationwide, Magellan Health and Dial Corporation now call North Scottsdale home. In the Scottsdale Airpark vicinity, AXON, Blue Yonder and Vanguard are examples of some of the company headquarters attracted to the 8.6 square mile area.
“Historically Scottsdale Airpark has had smaller users, a lot of owner/user buildings, and not necessarily a distribution market,” Kennedy explains. “But again, similar to what we’re seeing in other parts of the Valley, the demand right now is same-day delivery.”
Kennedy also notes that in addition to corporate headquarters, North Scottsdale is experiencing an uptick in technology and healthcare demand. “[Users in these markets] want a really nice image and close proximity to labor, people and rooftops,” he says.
The Mayo Clinic expansion provides a perfect example of what Kennedy describes as one of the largest capital expansions in the organization’s history. The 228 acres of land adjacent to the existing Mayo campus extends from 56th Street to 64th Street, south of the Loop 101 and will add close to 100 new patient beds by 2023, with plans for another 100 by 2030.
The expansion reflects the manifestation of the shared vision of Mayo Clinic, the City of Phoenix, the State of Arizona and Arizona State University to transform the region into a biotechnology corridor. As Mayo continues to grow, healthcare and bioscience broaden their footprint in North Scottsdale.
As larger users make their way to North Scottsdale, so are retailers, peppering the area with a diverse mix of offerings.
“North Scottsdale continues to be one of the better trade areas in the entire state,” Caballero says. “The majority of the time, every new-to-market retail tenant wants to open their first store in Scottsdale, especially along Scottsdale Road.”
Newer retail developments, according to Caballero, include the additions of eateries such as Café Rio, Black Rock Coffee, and a future Shake Shack at the corner of Loop 101 and 90th street. “Facing the freeway will be The Rustic, a food and live music concept out of Texas,” he says. “Other significant future restaurant announcements are Buck & Rider’s second seafood restaurant location at Scottsdale/Mayo and Pitch’s second barbeque restaurant location at Cavasson on the northwest corner of Loop 101 and Hayden.”
Headwinds and tailwinds
As hot spots like Mesa Gateway, Queen Creek, Buckeye, Goodyear and North Scottsdale continue a successful development trajectory, are there potential roadblocks ahead? After all, labor and supply chain issues have yet to substantially abate. Add in inflationary challenges to the mix and “roadblocks” seems a reasonable outcome for any area of development, let alone those experiencing high demand. But despite these formidable foes, CRE experts remain optimistic about the current and future development landscape.
“I think we’re going to see a little bit of a slow down on land purchases, for hopefully just a couple months, while people figure out where the interest rates are going to land, because that obviously affects cap rates and affects what you can pay for land,” Kennedy says. “So I think we’ll see a little pause there, but we have enough under construction right now to meet the demand of people coming to the market.”
Increases not only in land value but in construction costs have added to the “pause,” especially for retailers seeking to expand their presence in the market.
“Corporate and well-capitalized retail and restaurant concepts like Chick-fil-A, Raising Canes and Starbucks — as examples — are still able to absorb the higher prices and continue their growth,” Caballero explains, “but it has affected a lot of the regional franchises and all the mom-and-pop retailers.”
As both novice and experienced franchisees navigate their way through rising construction costs and high-ground lease rent numbers, Caballero says the big question is whether retailers will continue their growth trajectory as the economy slows down. “There haven’t been any signs yet,” he says, “as Arizona continues to be one of the hottest markets in the country — but only time will tell.”