The Phoenix retail big box market continues to hold back real improvement in shopping center vacancy. In the year-end 2015 National CoStar Retail Report, Phoenix ranked as having one of the worst retail vacancy rates in the U.S. Out of the 125 MSA’s the report tracks, Phoenix finished near the bottom ranking 123. With nearly 34 percent of the total vacant space in Phoenix being in the big box sector, this segment of the market is critical to the overall health and stability of Phoenix retail.

The Phoenix big box segment currently has 230 vacant spaces each over 10,000 square feet. These spaces total just over 5.9 million square feet of space.

Over 60 percent of these vacant big boxes are located in neighborhood shopping centers. Exacerbating this were the additional grocery store closings caused by the merger between Safeway and Albertson’s which created an additional five vacant stores. The demise of the Fresh and Easy chain added an additional fourteen stores. While we take two steps forward, we often take one step back.

With little change in this market segment we must evaluate why these vacancies are not improving. One of the causes for the high number of vacancies is that often neighborhood center anchor draws a smaller trade area than a power center does.

The neighborhood center normally draws three to five miles, and a power center draws approximately five to ten miles. Many national tenants, such as apparel or department stores would prefer power centers due to the larger draw. This limits the pool of potential retailers to lease these spaces.

When a neighborhood center has a vacant anchor it affects all of the adjacent shop and pad tenants. This can create additional challenges for owners of these centers whose tenants are suddenly struggling due to the anchor vacating and can create a snowball effect.

Often the vacating anchor has restrictions on what type of tenant can lease the space, and these restrictions live long after the tenant is gone (examples are grocery, drug, or a discount store replacement).

The question remains, at what pace will we improve? Certain retailers have added stores this past year such as Sprouts, Smart and Final, and Natural Grocer which have been able to lease some of the spaces.

These expansions help even if they are on a small scale. The fact remains, that these vacant boxes are with us and will affect our economic health for several years. Creative involvement for owners of vacant boxes will be needed to help fill these vacancies and bring their asset back to economic health.

Velocity Retail Group specializes in leasing big boxes to retailers and for owners. Our Research Department focuses on tracking relevant data that helps owners and retailers with their real estate strategy.