It is not only the weather that is hot in Phoenix. Shopping center outparcels, also known as “pads” are sizzling hot. Presently there are nearly 200 outparcel properties under construction or proposed in the Phoenix metro area, according to CoStar, a leading commercial real estate information source. These proposed projects range in size from 2,500 square feet up to 10,000 square feet and total nearly 1.3 million square feet of potential space.

These parcels are located in all parts of the Valley from Scottsdale to Sun City, Goodyear to Gilbert and all parts between. Free-standing building owners and shopping center owners are finding opportunities to either redevelop an obsolete existing pad building, or to carve out a pad utilizing excess parking within the shopping center. The goal is to maximize their investment with increased revenue and to bring additional shopping traffic to their center.

Why the interest now?

Following the boom of 2005 to 2008 new shopping center development in Phoenix has been on an extended pause in most submarket areas. The exceptions are in the Southeast Valley and Southwest and Northwest Valley submarkets, where some new projects which have an anchor tenant committed are coming out of the ground. Most of those projects also have outparcel / pad components to their site plans, which are fueling interest among a wide variety of retail pad tenants.

The visibility of the pad, proximity to other surrounding retail, premium signage opportunities, drive-thru capabilities and ease for the customer for ingress and egress all affect the interest level in the pad as well as the economics for the prospective tenant.

Rental rates for pads in an A+ location are in the $40s and sometimes $50s-per-square-foot. Purchase prices for these pads vary widely, but have been between $15 and $40-per-square-foot.

This activity is fueled by the demand of retailers and restaurants who are expressing a desire to locate in very established and densely populated trade areas in order to serve their customer base. The continued growth of restaurant tenants has also propelled added interest.

The tenants vying for space in visible pad locations include food users of all types including fast casual, fast food, chef-driven concepts and specialty food tenants; medical tenants, including urgent care, chiropractic, dental and vision; retailers such as mattress, jewelry, wireless providers, pet supplies, banks and personal services such as nail spas and massage.

Following are a few recent “hot pads” developed around Phoenix:

  1. Town & Country – Camelback Road and 20th Street, southeast corner
  • Three hard-corner buildings were sold by the shopping center owner. These buildings were an Arby’s, Chili’s and a retail building with FedEx Office. These buildings were demolished to make way for a new Container Store, Orvis, F-21 Red and First Bank.
  • On the eastern end of the project a new pad building was constructed of nearly 20,000 square feet with several tenants, including Tokyo Joe’s, Dunkin Donuts, FedEx Office, Café Rio, Pot Belly Sandwich, Brite Now Dental and Primp & Blow.
  1. Indian School Road and 40th Street, northwest corner.
  • A funeral home and adjacent parcel were sold and now being developed into a 14,000 multi-tenant retail building with six tenants including three restaurants and a yoga studio.
  1. Bell Road and 75th Avenue, southwest corner
  • A former Five & Diner restaurant was sold and developed into a, 8,700-square-foot three-tenant building with Mattress Firm, Spa 810 and Noodles & Company
  1. Colonnade Mall – Camelback Road and 20th Street, southwest corner
  • Utilizing excess parking to create a pad for In-N-Out Burger to build their store on the 20th Street side of the project.
  1. Shea Boulevard and 70th Street, northwest corner
  • A former Claim Jumper restaurant is being demolished to be replaced with a pad building of 10,200 square feet with four potential tenants.
  1. Baseline Road and Power Road, southeast corner
  • A former gas station will soon be home to a Starbuck’s and Smashburger.

These new buildings are also fueling the investment market with a supply of newly constructed single-tenant-net-leased opportunities. STNL investors that include all types of interested parties from individuals to REIT’s who are investing at increased levels. It is not uncommon to see multiple offers on one STNL offering.

With a seemingly endless supply of functionally obsolete buildings located along our main driving arterials, the hot pad trend can continue for years to come. As long as retailer demand persists, and rental rates are held at levels affordable for the retailer’s proforma, the heat should remain high for the pad redevelopment business.