The Phoenix retail sector seems to have broken through the holding pattern that has consumed it for most of 2010 and 2011. In the final quarter of this year, absorption numbers were the highest in some time and overall momentum seems to be shifting in the right direction. Pent up demand for goods has driven sales numbers higher and consumer confidence is up. Record-breaking holiday sales figures, rising automobile sales and a feeling that the economy is improving have all contributed to this upward trend. As a word of caution, the doors can swing shut again if gasoline prices shoot up or other bad economic issues come to light.
One noticeable trend in retail is the rebranding that shopping centers and retail destinations are pursuing in response to changing urban trends. Two examples of this rebranding are Mill Avenue in Tempe and Metrocenter in Phoenix.
Mill Avenue’s rise as a prominent retail destination started in the 1980s as downtown Tempe began to reinvent itself. Large national retailers replaced pool halls and head shops driving rents up and driving out many independent businesses. With the fall of the economy beginning in late 2007 and the construction of Tempe Marketplace just 2 miles east many of those large retailers either moved or closed due to economic challenges such as bankruptcy. During the past year, Mill Avenue has returned to its roots by working with local businesses to promote new shops on the funky thoroughfare. After sitting vacant for two years, Centerpoint Towers (currently, West 6th) has been purchased and is leasing up quickly adding hundreds of captive shoppers to the area. Mill Avenue no longer competes with Tempe Marketplace for customers; instead it offers a unique destination with local merchants.
Metrocenter mall was opened in 1973 as the largest regional mall in the Western U.S. With five anchor stores and over 275 stores, it was a force to be reckoned with. During the past 40 years, the continual movement to the outer fringes of the Valley and the construction of newer malls, proved too much for Metrocenter and it fell into rapid decay. Macerich purchased Metrocenter in 2005 and began significant renovations. Now Metrocenter caters to a growing Hispanic population and offers more varied shopping experiences. The surrounding shopping areas are also undergoing transformation to align with the mall’s efforts and remain viable. Metrocenter’s location next to I-17 and regional transit hub and a future light rail station secures its future on the retail scene.
The Phoenix retail sector posted a vacancy of 11.9% which is 50 basis points lower than last quarter’s 12.4%. Retail vacancy rates have been stagnant for most of 2010 and 2011. This drop signals a healthy return of absorption as retailers respond to growing consumer confidence and pent up demand. Total absorption was a healthy 909,759 square feet; a sharp uptick from last quarter’s adjusted 144,730 square feet. This is the highest absorption rate since third quarter 2009. The East Valley showed the most increase with 328,513 square feet while Central Phoenix showed the smallest gain with 4,834 square feet.
Average rental rates continue to suffer because of elevated vacancy rates. Shopping center vacancies are still high and pushed overall rates down again this quarter to $14.73. Construction activity rose this quarter to 215,844 square feet, up from last quarter but still way down from the 6-10 million square feet of building per quarter during the last economic boom of 2006-2007. Only 20,643 square feet of retail space was delivered this quarter.
Overall leasing activity was down slightly this quarter in total transactions as well as square feet leased but not far off historic levels. Sales activity showed a slight increase in the number of deals however total dollar volume was down. Average price per square foot was posted at $121.18 per square foot.
In the largest retail lease transaction of the quarter, Savers Discount leased a total of 34,277 square feet at Northsight Village, 15090 N Northsight Blvd. in Scottsdale. There was no price estimate for this transaction. In the largest sale transaction of the quarter, Kimco Realty Corporation purchased the North Valley Power Center, 8215 W Bell Rd. in Peoria for $23,394,000. Total square feet was calculated at 167,997 sf. The price per square foot was calculated at $139.26.
