Monthly Archives: November 2012

Q3 2012 – NAI Retail Market Report

Third quarter was a small hurdle for the retail market, as fluctuations saw absorption trend down and rental rates drop. Despite these contractions, construction employment is up and consumer confidence is growing, according to the Conference Board. Retail sales across the nation showed signs of growth, according to the Department of Commerce. There was a 1.2% advance in consumer demand in August; the growth was noticed in 12 of the 13 retail sectors. Furthermore, on a national scale the outlook for manufacturing job growth and the increase in expendable income should boost the demand for retail products and space alike. Retailers will need to continue to compete with the online market, which, according to Forrester Research, will bring an estimated $327 billion in sales throughout the US by 2016, by enhancing the shopping experience. For consumers, the act of shopping is now more about the social interaction and ambiance of a store or mall, rather than the product options that that cannot compete with an online resource.

Absorption for the third quarter retail market stands at 137,091 SF. This marks the third consecutive quarter that absorption has decreased for retail space. Metro Phoenix’s absorption level is down nearly 35% from the previous quarter. The Scottsdale submarket followed that trend by displaying a reversal from last quarter, as absorption was (43,444) SF compared to second quarter’s 210,000 SF. Third quarter’s best performing submarket was the East Valley, where space absorbed was recorded at 112,878 SF. The commercial real estate industry has noticed the impacts of efficient technology such as smart phones and tablet PCs, all encouraging a reduction in square footage and employees.

The top lease transactions during this quarter include the 34,162 SF community center lease signed by Planet Fitness at 7333 W Thomas Rd in Phoenix, the 28,000 SF community center lease signed by Goodwill at 1546 E Southern Ave in Tempe, and the 18,646 SF community center at 1346 W Southern Ave in Mesa signed by K-MOMO, an urban lifestyle clothing retailer. On average, rental rates continued to trend down, averaging at $14.49 for the third quarter.

The Phoenix retail vacancy rate found no room for movement, and posted the same level of 12.1% as the previous quarter. By submarket, the Phoenix Airport area had the best recorded change in vacancy, declining from 13.5% to 9.0%. The lowest vacancy rate was observed in the Northwest Valley submarket which includes Surprise, North Peoria, and Anthem at 8.4%. Historical vacancy and average rental rates are both trending down and converging. Nevertheless, as vacancy rates continue to decline, and approach the historical 7% level, landlords should find more room to cease concessions and raise rental rates. Occupancy percentages have trended up since third quarter of last year, posting a rate of 87.7%

Construction activity on retail properties dropped during the third quarter. Third quarter recorded 192,484 SF of space under construction. Delivered space declined to 94,940 SF, a 42% decrease, while construction starts fell 84% to 55,000 SF. In September of 2012, the Producer Price index for inputs to construction, a weighted average of the cost of all materials used in construction plus items consumed by contractors such as diesel fuel, increased .9% in both September and August. Even with the onset of heightened costs, throughout the past year the addition of construction jobs put Metro Phoenix at the top of “new construction jobs” list, according to Associated General Contractors. As noted last quarter, it will take a considerable amount of time, or a huge spark in consumer confidence, to overcome the indecisiveness and market fluctuations throughout the US.

Nationwide, retail properties valued over $2.5 million had a total sales volume of $9 billion for the third quarter, down from the previous quarter’s $12.1 billion. Also on a national scale, capitalization rates for retail properties had little to no movement, averaging 7.15%. In Phoenix, cap rates trended down to 7.96%, recording a 2.7% decline. Year to date leveraged buyouts of US retail companies realized a significant allocation of capital, standing at $7.66 billion. This level is up from the $4.45 billion recorded throughout 2011. Investors will look to high quality retailers who can weather a recession, and are still finding pricing discounts, according to National Real Estate Investor.

NAI Horizon Congratulates Hunter Null on LEED® Green Associate Accreditation

NAI Horizon is proud to offer the expertise of Hunter Null, newly accredited LEED® Green Associate.

Hunter Null, Associate Agent at NAI Horizon and LEED® Green Associate, is skilled in the acquisition and leasing of LEED-certified facilities. “LEED-certified buildings are becoming more and more popular within the commercial real estate industry due to their environmental sustainability and operational savings, which in many cases result in little to no increase in building costs,” says Null. Ultimately, LEED is good for business; LEED certification boosts bottom lines, makes properties more competitive, limits risk, and attracts tenants.

In addition to Null’s services, NAI Horizon is also equipped in the property management of LEED Green facilities with Jolyn Safranek, Property Manager and LEED® Green Associate. In addition to her LEED certification, Safranek has 12 years of Property Management experience, is a licensed broker in Arizona, and has earned the RPA designation from the Building Owners and Managers Association.

LEED (Leadership in Energy and Environmental Design) provides building owners and operators with a framework for identifying and implementing practical and measurable green building design, construction, operations and maintenance solutions. LEED-certified buildings are designed to lower operations costs, increase asset value, reduce waste, conserve energy, and qualify for tax rebates, zoning allowances and other incentives.

“LEED Green Associate” and the LEED® Green Associate logo are trademarks owned by the U.S. Green Building Council and are awarded to individuals under license by the Green Building Certification Institute.

Q3 2012 – NAI Office Market Report

The Phoenix Office Market trudged along during the third quarter with mediocre growth. The Coincident Index for Phoenix, which includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries, increased during the third quarter from approximately 179 to 180.5. Another measurement of job growth that has impact on the Phoenix office sector is the Professional and Business Services Employment rate. According to the Bureau of Labor Statistics, the number of individuals employed in Arizona in these fields increased to approximately 348,000 from 355,000 during the third quarter.

The third quarter recorded positive absorption at 467,529 SF, marking a 22% decrease from the 570,000 SF absorbed in the second quarter. The Tempe and Central Scottsdale submarket posted the highest positive absorption figures at 219,820 SF and 158,417 SF, respectively. The Deer Valley submarket recorded the highest negative absorption figures, with (8,879) SF of space. This movement is consistent with recent trends; tenants are continuing their flight to higher quality space driven by accessibility. According to data, such Class A properties are being met with the highest demand.

Square footage leased totaled 1.6 million SF this quarter, compared to the 2.6 million SF recorded in the second quarter. Sales data recorded an even larger downfall; the total dollar volume of sales declined nearly 80% to $25.33 million. The top lease transactions during this quarter included: the 139,404 square foot lease at 4500 E Cotton Center Blvd in Phoenix signed by Aetna, the 138,240 square foot lease at 444 N 44th Street in Phoenix signed by State Farm Mutual Automobile, and the 105,000 square foot lease at 2222 W Dunlap Ave in Phoenix to United Healthcare.

The office vacancy rate declined slightly during the third quarter to 20.0%, an improvement from the second quarter rate of 20.2%. However, the slight improvement in vacancy did not translate to increased rents. Rental rates are still being priced by tenants; demand is not strong enough for price increases to take effect. Rental rates in the third quarter dropped to $20.18 per SF from $20.20 in the second quarter. The supply of vacant space must still be worked through for rental rates to trend up.

Office building construction matched the low levels seen during the second quarter. There were no new construction starts this quarter, and only 55,617 SF of space was delivered. There is currently 374,390 SF of space under construction. On a positive note, the final phase of Hayden Ferry Lakeside, a Class A office tower in Tempe, will potentially begin construction in the future quarters. This project has been stalled since the recession began and marks the first anticipated high-rise to break ground in Tempe since 2007.