By Colliers in Arizona
The first quarter of 2021 brought positive net absorption to the Greater Phoenix retail market, according to a report released by Colliers in Arizona. Absorption pushed vacancy down and rental rates continue showing signs of growth.
The city lost significant jobs during the spring of 2020 as the pandemic unfolded, but many have been recovered. The retail trade super sector lost 29,000 jobs in April of last year and as of March 2021 approximately 99.6 percent of the lost jobs had been recovered. The leisure and hospitality sector, which lost 96,400 jobs, has only recovered 64.7 percent of its positions.
During the first three months of 2021 the city posted 246,897SF of net absorption. This marks the highest level of net absorption since second quarter 2019. The Northwest submarket cluster had the single largest move-in with Lifetime Fitness taking occupancy of 180KSF. Leasing activity increased 18 percent year-over-year. The volume of new retail deals has increased 85 percent since the slowdown in second quarter 2020.
First quarter was completed with 7.7 percent of retail space vacant, which is 20 basis points lower than fourth quarter 2020. This is still an increase of 40 basis points over vacancy posted March 2020. South Mountain posted the largest increase in vacancy both over-the-quarter and year-over-year, primarily attributed to the closure of Fry’s Electronics. That closure added 148,992SF to that submarket’s inventory. West Valley submarket posted the lowest vacancy at 4.9 percent, which is 70 basis points down year-over-year.
Rental rates continue to rise, elevating 1.1 percent year-over-year. As the metro area grows and demand for retail space increases in the outskirts, rising land prices and elevated construction costs are pushing rental rates even higher. Rental rates finished first quarter at an average $14.75/SF, marking a .34 percent increase over-the-quarter.
Construction moved forward during the first quarter, bringing 231,020SF of new retail space to the market. These new projects came online with only five percent vacancy. Demand for drive-thru spaces and the creation of new restaurant concepts have been pushing the market for new construction. In addition, city sprawl in both the east and west valley regions is creating more demand for retail space.
The Northwest Phoenix submarket cluster added the most square footage, including delivery of the Lifetime Fitness at 67th Avenue and Happy Valley Road, as well as the grocery store chain Aldi at Lake Pleasant Parkway and Happy Valley Road. These two properties total 202KSF and comprise 87 percent of the city’s first quarter deliveries.
Only 431,333SF are under construction currently, compared to the three-year average of 760KSF. The largest project under construction is Fry’s Marketplace at Village Grove at Verrado on the NWC of Jackrabbit Trail and Indian School Road. The 124KSF project is expected to be completed next quarter.
Investment sales of retail properties remained healthy in the first quarter of the year with 41 transactions totaling $382M. The median price paid per square foot increased 14 percent year-over-year to $191. (Source)