Source: Colliers International
Colliers International in Greater Phoenix released its Retail Research and Forecast Report for first quarter 2016.
The Greater Phoenix retail market opened 2016 on a fairly high note, with net absorption surging during a time that is typically a soft period. Net absorption topped 675KSF, the strongest first quarter for net tenant demand since 2008. Continued absorption is anticipated in the quarters ahead, bringing the forecast total for all of 2016 to approximately 2.2MSF.
The strong start is being fueled by healthy hiring and a strengthening local housing market. The job market grew by 3.5 percent over the past 12 months, with more than 65,000 new jobs added.
A rise in home starts is also supporting retail demand. Single-family housing permit issuance rose by more than 40 percent in 2015, and year-to-date activity is up 25 percent from the 2015 pace.
- The vacancy rate in Greater Phoenix fell 30 basis points in the first quarter to 9.5 percent. Year over year vacancy has declined 70 basis points. Some of the strongest improvement in vacancy has been recorded in the East Valley, where the rate has fallen 120 basis points in the past year to 10.3 percent.
- Retail conditions are strengthening in the Northwest Phoenix submarket, where vacancy declined by 90 basis points in the past year to 5.7 percent. The Deer Valley segment of Northwest Phoenix is posting some of the strongest improvement, with vacancy cut nearly in half in the past year, ending the first quarter at just 5 percent.
- In the past 12 months, retail asking rents have increased by 3.2 percent, ending the first quarter at $13.73 per square foot. Retailers are being attracted to downtown Phoenix as becomes an increasingly popular residential option, due in part to the expansion of Arizona State University’s Downtown campus. Downtown retail rents increased by 14.5 percent to $15.21 per square foot in the past year.
- Sales of shopping centers slowed modestly in the first quarter, but overall, transaction activity has been fairly steady in recent years. Prices have also shown little volatility; the median price in the first quarter was $112 per square foot, compared to $111 per square foot in 2015.
At the local level, both total employment and retail sales finally returned to their pre-recession peaks in 2015, and further gains are forecast for 2016. Economic growth is supporting the retail climate, even as market vacancy remains elevated due to the continued presence of vacant big-box spaces.
Some of these spaces are being repurposed, but this process will take some time. As a result, the vacancy rate should improve at a fairly modest pace in 2016, even as retail spending continues to accelerate.