Phoenix Retail Market Overview
The Phoenix retail market is far better than in years past. The metro’s buoyant economy and speedy population growth have contributed to a stable retail market, attracting opportunistic investors. Demand has been high for grocery, pharmacy, home improvement, drive-thru, and hobby stores, mainly from out-of-state buyers on the hunt for prime single-tenant triple net lease properties. Additionally, the supply-side risk has lowered due to the supply pipeline balancing out over the past ten years.
Phoenix leasing activity has rebounded. Approximately 3.8 million square feet of retail space was absorbed in the past 12 months, compared to the five-year annual average of two million square feet. 90% of new leases are for smaller tenant spaces under 5,000 square feet. Smaller spaces typically go to food and beverage vendors, such as Black Rock Coffee and Eegee’s. Big-box stores are being filled by discount retailers, grocers, and gyms. Recent transactions have included Fitness 1440, which signed a 27,00 square foot lease in North Scottsdale, and Pickleball Kingdom, which signed a 37,100 square foot lease in Chandler.
Additionally, nontraditional tenants, such as schools, religious organizations, and medical tenants are filling vacant storefronts. For example, at the end of 2021, Mind 24/7, a behavioral health clinic, took over a 50,000-square foot retail space previously occupied by LA Fitness. Further, a new and active trend in the restaurant space is the use of Ghost Kitchens, which has allowed restaurateurs to test new concepts with little expense.
Rent growth in Phoenix has trended upwards in the past 18 months. Over a 12-month period, same-store asking rents have changed by 6.4 percent, compared to the national average of 4.2 percent. Rents are still below their 2007-high, so there may be room for more rent growth. Sectors proving to be the strongest have been strip and neighborhood centers, with malls on the other end of the spectrum. Shopping habits of consumers have shifted because of the pandemic, and the e-commerce industry is a threat to retail across the country.