While there is still some uncertainty in the retail sector in Arizona, professionals in the market are seeing signs of growth as businesses become more confident and look to take advantage of opportunities to either expand their presence or improve upon exisisting space. This is leading to a significant uptick in interest in both new infill redevelopment and infill redevelopment projects abandoned during the recession. Additionally, owners and brokers are seeing interest in specific spaces, mostly in the A class, go up, which could help raise asking rents and drive down concessions. "On the financial side, existing tenants are no longer seeking rental concessions as they were during the recession and are paying their rents on time," says Christine Zeihen, Chief Financial Officer at Desert Troon Companies. While certain players in the retail market are still playing it safe, others are aggressively leasing up space. Particularly, fast food and quick service users in the restaurant space are driving much of the retail activity in Phoenix. The market as a whole is showing steady progress. The current vacancy rate in retail spaces of at lease 30,000 square feet sat at 10.0 percent at the end of the first quarter of 2014, which marks a slight decline from the rate of 10.9 percent a year ago, according to CBRE's Phoenix Retail MarketView. The Phoenix Metro also posted positive net absorption of 387,226 square feet in the first quarter, continuing a trend that has seen the market post positive net absorption in 10 of the last 11 quarters, according to the report. North Scottsdale and Tempe/Ahwatukee led this trend with 84,387 square feet and 81,251 square feet respectively. Two submarkets, Maricopa and Apache Junction, posted negative net absorption in the quarter. In order to delve deeper into these trends and others in the retail space, Commercial Executive Magazine assembled many of the top retail gurus in Arizona for a happy hour discussion sponsored by Fidelity National Title, The Pederson Group and Desert Troon Companies. This commentary has depth and multiple perspectives, featuring remarks from a variety of sources, from brokers to financial experts.
Ed Beeh, Executive Vice President and Market Leader, SRS Real Estate Partners
Which retailers are looking to expand?
Restaurants are on category of retailers that are expanding aggressively. Some of the fast-casual restaurants that are active in the market are Cafe Rio, Barbanzo Mediterranean Grill, Fox Restaurant Concepts, Chipotle, MOD Pizza, Habit Burger and Buffalo Wild Wings. As far as QSRs, Raising Cane's, Culver's, Chick-fil-A, McDonalds, and Kneaders are pushing to open more units. Discounter retailers and health clubs have not slowed down either. Dollare health clubs have not slowed down either. Dollar Tre, Goodwill and Epic Thrift remain very active. LA Fitness, Moutainside Fitness, Blast! Fitness, and Orange Therory have plans to open several more units in Arizona and nationwide. The grocery store openings have been fairly lackluster for the last few years, but there are a few chains that continue to expand, such as WinCo Foods. Fry's, Sprouts, and Wal-Mart Neighborhood Markets.
What trends are you seeing emerge in retail?
The trends we are seeing are downsizing, consolidation, urban infill, non-retail backfill of vacant boxes, mixed-use and the expansion of urgent care/emergency rooms into retail projects.
Mile Polachek, Executive Vice President, SRS Real Estate Partners
What businesses are driving the retail sector currently?
The outlet business, restaurants and entertainment are all general business areas that are driving retail right now.
What makes the Phoenix area attractive to your clients?
Clients looking to expand are attracted to the growth and the potential growth of the Greater Phoenix market, affordability and lifestyle.