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PHX Retail Ended 2016 on an Up Note

Courtesy of Colliers International

By Roland Murphy for Arizona Builder’s Exchange

The retail real estate in Greater Phoenix ended 2016 on an up note, with net absorption of approximately 545KSF in Q4, according to Colliers International’s Research and Forecast Report. For the year, net absorption was more than 1.5MSF.

The quarter also saw asking rents move slightly lower, but they still held an increase of 1.6 percent over the previous year.

Shopping center sales ended ahead of 2015, and prices rose while cap rates tightened in 2016, demonstrating an overall positive outlook for the market.

Construction Growth

For the second half of the year, construction picked up, contributing to a new development total of 1.4MSF, the largest yearly total in seven years. Fry’s Food was the leading single contributor, adding 500KSF as part of its expansion efforts.

Investment Market

The investment market gained momentum over 2016, despite declining slightly in Q4. Grocery-anchored centers rose in price by nearly 30 percent year-over-year, and Colliers notes there could be an ongoing increase in those centers’ sales in the years to come.

In all, transactions in retail properties saw an almost 20 percent annual increase, with a spike in transactions greater than $40M.

Vacancy

Vacancy rates closed out the year 10 basis points lower than 2015. Following a slight increase in Q3, retail vacancy dropped 10 basis points to end Q4 at 9.5 percent.

West Valley vacancies dropped 80 percent to end at 6.7 percent. Colliers predicts tenant demand will increase on the west side as the housing market continues to improve.

Rents

Scottsdale shows some of the most significant increases in asking rent. The average jumped nearly 5 percent to $21.32/SF.

The East Valley in general has the area’s largest inventory and has been posting significant gains in rents, posting a 4.1 percent increase over the year to end at $13.57/SF.

Trends in Investments

Shopping center sales volumes dropped 13 percent from Q3-Q4. Activity had peaked in Q2, and this contributed to transaction activity totals that ended up approximately 5 percent from 2015 to 2016.

The median price for shopping center sales increased to $133/SF, a 20 percent gain over 2015. There was, however, a modest dip in Q4, with prices dropping to $127/SF.

Finally, cap rates compressed for the year. The Q4 rate dropped from 6.6 percent down to 6.5 percent. For the year, rates came in at around 7 percent, 70 basis points lower than 2015.

Going Forward

Colliers anticipates the retail market will continue to record improvements in 2017. The report cites factors such as ongoing economic growth, continued momentum gains in the local housing market, and, consequently, support for increased retail spending.

The report cautions, however, that companies closing all or some locations may be a prevailing trend in retail, which will affect net absorption and limit the decline in overall vacancy, slowing the potential rate of improvement.

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