LMS Discusses Office & Retail Markets

Credit: BEX

By Tasha Anderson for AZBEX 

COVID-19 definitely slowed certain markets down in 2020. Retailers briefly shut down and employers closed offices to allow their employees to work from home; however, the Phoenix office and retail markets are certainly not dead. In fact, they are busier than ever in 2021. 

That was the consensus at the Leading Market Series event held on July 14th. Attendees gathered in-person at Sky Song in Scottsdale and online for BEX’s first hybrid event experience, in order to get an owner’s perspective on what’s going on in the office and retail markets. 

Panelists included Walt Brown, Founder, CEO and Designated Broker of Diversified Partners, LLC; Laurel Lewis, Senior Vice President for NAI Horizon; and Joshua Simon, President of SimonCRE. The presentation was moderated by Rebekah Morris, Owner and Founder of BEX. 

Lewis noted that Phoenix is pretty much in the middle for leasing and construction compared with other competitive markets and, while people still think that there is no need for office because of the current work from home trend, she said that her pipeline of prospective tenants has not slowed down. 

Brown and Simon touched on the retail side and the current misconception that retail is dead. Brown said that sales are doing better than expected though retailers have less employees, and Simon noted that retail is adapting to the customer’s need for more convenient options, like more drive-thru’s, larger patios, the option to order online and pick-up in-store and reserving sections for online distribution. 

Longer Wait Times Slowing Things Down 

Though the office and retail markets are busy, obtaining permits and going through processes with the cities are slowing things down. 

Brown touched on the entitlement process being “slow at best” and hiring a full-time person just to establish relationships with the cities. He also said that cities are looking for plans that are over-designed. 

Simon talked about how last March budgets were put on hold and hiring processes stopped. Now that things have opened back up, they are competing with private companies who can hire faster so the cities are currently short staffed. 

And while the cities are backed up and slowing down, land sales are going faster. Brown said that firms used to get time to study the property and now land sellers are becoming less patient and not giving that time anymore, so they are begging for deals and overpaying. 

Simon agreed and said that there will be more people not doing their due diligence which will cause buyers to walk away from deals. 

Costs and Availability 

Another issue affecting office and retail projects is the cost and availability of materials and finding the right consultants.  

According to Brown, consultants are busier than they have ever seen and sometimes they need to pre-pay them to get their attention. They are looking at hiring consultants from other states as well. Simon noted that it is a good idea to keep good relationships with the consultants so they might honor their prices as material prices change. 

Both panelists agreed that the availability of materials is getting better on some things, but developers need to work more in advance in order to get the parts they need and get their projects done on time. 

The cost of construction is trickling down to the tenant level, Lewis discussed, as the cost for tenant improvements is a lot higher. Lewis also stated that TI’s are going to take longer than tenants expect so they need to start earlier. 

Trends for 2021 

Regardless of the obstacles both markets face, one of the biggest trends that the panelists are seeing in 2021 is that there is more investment in real estate and people are throwing more capital toward them wanting to partner or to invest. 

Another trend that Simon noted is that cities are being more flexible with parking standards as more retail buildings want drive-thru’s or larger patios. 

A trend that Lewis brought to light was the fact that landlords are now looking for longer lease terms. Last year, landlords were being more flexible, allowing shorter lease terms due to the uncertainty the pandemic brought on, however, now she noted that office landlords are looking at seven to 10-year leases. 

In all, the misconceptions of the Phoenix retail and the office markets are just that… misconceptions. Retail is not dead, rather, it is adapting to the needs of the consumer, and offices are still being leased as more employers are bringing their employees back to work. 

The next Leading Market Series will be on December 2nd and will discuss Higher Education. To learn more or to register, Click HERE. 

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