Oct 1, 2007
By Ron Barness, principal of RBI and Barness Papas Investments and Ron Finkel, Senior Managing Director/Designated Broker of RBI
Although the housing market in the metro-Phoenix area seems to be gradually leveling off from its unprecedented recent growth, the retail real estate market continues to thrive as it has for the past few years. For the most part, the commercial real estate market seems to follow the overall performance of the economy, but is always a bit behind. The retail market has not yet (and most likely will not) hit the extreme highs that the Phoenix residential market hit last year, so it seems to be a relatively safe predication that it will not hit any major low points, either.
Phoenix continues to be a hub for retail development, especially with the revitalization of downtown Phoenix, in the Copper Square district, and with the massive expansion efforts and new growth in the West Valley. Copper Square will soon house some of the most high-end retail in the state, combining a wide mixture of entertainment, restaurants, shopping and more. As these new retailers join the established downtown area, most will have to adapt their traditional store layouts for the smaller spaces that are available downtown, which could have an effect on leasing.
Scottsdale’s downtown area is also being revamped with a $1 billion facelift. The area continues to be one of the Valley’s strongest retail markets, with more than 220,000 square feet of new shops at the Scottsdale Waterfront, most of which have already opened for business or will open before the end of 2006.
Additional retail growth has been sustained due to the ongoing and aggressive freeway expansions around the Valley. Retail is popping up everywhere alongside freeways and freeway exists, specifically in the West Valley. This is evidenced through projects such as Westcor’s Prasada and Estrella Falls. Prasada is a 4,200 acre master-planned community with an 800-acre commercial core and more than three million square feet of retail space, located near the intersection of the Loop 303 and US 60, and Estrella Falls is a 300-acre mixed-use development off the Loop 303. These projects join the new Glendale Arena at Westgate City Center in Glendale, which adds a whole new lot of retail development to the West Valley.
Rental rates for retail space will continue to rise, ranging from single-digit lows of $5 per square-foot to highs of $40 per square-foot in select submarkets, as more high-end retailers continue to break into the market. Vacancy rates are currently just below five percent.
Lifestyle, open-air centers, mixed-use and transit-oriented developments still continue to be the focus of developers. Transit-oriented development is playing an integral role in the retail redevelopment of downtown Phoenix as the Central Phoenix/East Valley light rail transit corridor shapes up to open in December 2008.
Smaller-anchored retail centers are thriving as well. Lesser-known groceries, fitness centers and hardware stores have become key players in neighborhood centers. Ace Hardware, for instance, has leased 120,000 square feet of space year-to-date throughout Phoenix, and has plans to expand further in the near future.
The massive increases in the Valley’s population combined with a strong economic forecast in 2007 indicates that retail development will continue to be a driving force throughout the year.