By Roland Murphy for Arizona Builder’s Exchange
The Valley’s retail sector closed out 2016 on a high note, according to recently released findings by CBRE Research.
The Q4 Phoenix Retail Marketview shows the quarter experienced nearly 600KSF of positive net absorption, the most in 2016, and vacancy dropped four basis points quarter-over-quarter, ending Q4 at 8.9 percent.
Triple-net asking rates went up 4 percent year-over-year, ending the quarter at $17.16/SF in a year that saw almost 5MSF of gross leasing activity, 1MSF more than 2015.
Contributing to inventory was 1.3MSF of new construction completed, more than 350KSF of which was delivered in Q4. Grocery stores are the leading force in new construction. Six new groceries were delivered in 2016, and three more are in development for 2017. In total, there were 13 big box completions in 2016.
Regarding the strength of retail, First Vice President Greg Abbot said, “Phoenix still has a lot of runway for retail growth, given we were one of the last markets to head into recovery post-recession. The Valley’s housing market is projected to be one of the best in country and because retail tends to follow rooftops, I expect a lot of momentum as retailers expand and enter the Arizona market.”
Big Box Buoyant
In the big box sector, despite a rash of bankruptcies in the first half of 2016, the market continued to show significant strength.
CBRE shows 4.3MSF of big box space in 120 locations around the Valley, 953KSF of which was in the Class A category.
The sector is demonstrating strong appeal on both ends of the development spectrum, as well. Older spaces are expected to be redeveloped for more modern uses, both as non-retail spaces and by sectioning into multiple, smaller uses. In terms of new developments, the appetite remains relatively strong, as more than 300KSF were delivered in four 100 percent preleased projects.
One event that had some analysts concerned early in the year, the shuttering of Sports Authority spaces nationwide, in addition to other bankruptcies by major outlets like The Room Store. While the closings put vacant space of more than 1MSF on the market, the demand for Class A space remained high enough to offset the influx. Four of the stores were absorbed over the course of the year, three in Q4 alone.
In one last big box item of note, Target agreed to lease 50KSF of space for what the company is calling a “flexible-format store,” a Valley first.
CBRE First Vice President Todd Folger anticipates continuing strong big box demand this year. “2016 saw 17 big box spaces absorbed for 905KSF in Q4 alone and 41 spaces for nearly 2.1MSF for all of 2016. With only 28 class A boxes currently available, the market is getting increasingly competitive,” said Folger. “Development has started to keep pace with demand, so I expect pre-leasing activity on new class A space to remain high as well. The remainder of available big box space is starting to reach the end of its functional life, so look for continued redevelopment of those boxes for uses outside of retail.”