By Colliers in Arizona
The Greater Phoenix retail market vacancy level hit a historic low 4.8% at the end of June, reflecting strong tenant demand in one of the nation’s fastest-growing cities, according to a report released by Colliers in Arizona. Data from Affinity Solutions indicates Phoenix has experienced a 16.5% increase in all consumer spending since January 2020.
During Q2, retail vacancy fell 40 basis points, which was a 130 basis point decrease year-over-year. This marked the 12th consecutive quarter that vacancy has decreased. Eight out of nine geographic submarkets in the city posted retail vacancy decreases year-over-year. Downtown was the only submarket with a rise in vacancy. The lowest vacancy is found in the West Valley, falling to just 1.8% during the second quarter. Scottsdale posted the second lowest vacancy at just 3.6%.
Net absorption of retail space during the second quarter totaled 717.3KSF, bringing the year-to-date total to 1.9MSF. Net absorption at the mid-year point reached 80% of the total net absorption posted in all of 2022. The market is within 500KSF of topping last year’s absorption level. New deals larger than 10KSF rose 17% from Q1 and were up 22% year-over-year.
Strong population growth has driven demand for space and a rise in construction activity. Deliveries of new retail space during Q2 totaled 153KSF. This was lower than Q1 and 39% below Q2 2022. The market posted new space totaling 700KSF during Q1 and the amount of space currently underway is 1.47MSF. New projects underway are heavily located in the East and West Valley submarket clusters, making up more than 75% of product under construction.
Rental rates in the Phoenix retail market continue to grow, ending the second quarter at an average $16.12/SF. This is a 1.38% over-the-quarter increase and a rise of 3.0% year-over-year. Every submarket cluster witnessed a quarter-over-quarter rental rate increase during Q2.
Unlike other commercial real estate sectors, Retail Investment sales during Q2 saw a 64% rise in transaction volume, ending the period at $293M. However, Q2 2023 fell behind sales from Q2 2022 by 30.9%. First half sales volume is down 50.7% from the first six months of 2022, with total year-to-date volume posted at $472M.
The outlook for Greater Phoenix retail space remains optimistic as the population growth flourishes and demand from tenants is strong. The period between Jan. 2022 and June 2023 brought 148 new restaurants opening in the city, with only 74 restaurants shutting down.
AZBEX NOTE: The BEX Leading Market Series event on Sept. 13 will examine the Retail and Restaurant space in detail, with a panel of noted experts discussing the latest trends and developments. Additional information and registration are available here.