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June 27, 2017
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First Quarter 2017 Review of Phoenix Retail Market

4/04/17

The Phoenix retail market kicked off 2017 with strong leasing activity, rising net absorption, and steady rental rates, according to the latest research from real estate services firm Kidder Mathews. Total vacancy decreased by 20 basis points to 8.6%, a result of 803k sf of positive net absorption and close to 1 msf of leasing activity this quarter. With growing demand, the market is expected to continue tightening, with increased competition for space and higher rates to continue in 2017. The Phoenix unemployment rate sits at 4.5%, only a 10 basis point decrease from the 4.6% recorded this time last year.

The overall retail vacancy level of 8.6% represents the lowest vacancy rate recorded since the third quarter of 2008. Submarkets in Phoenix with the highest direct vacancy rates include North Phoenix/ I-17 Corridor at 14.8%, Carefree at 14.2% and Red Mountain/Mesa at 13.4%. Submarkets with the least vacant space include Gila River and NE Outlying at 0.0%, and South Buckeye at 2.8%. Submarkets with the highest net absorption included Red Mountain/Mesa at 248,000 SF and Surprise/North Peoria at 149,000 SF.

In the first quarter of 2017 over 2.6 msf of new construction was delivered, the majority of which was constructed in East Valley submarkets. Another 1.2 msf of retail product is currently under construction, most of which is clustered in the East Valley, North Phoenix and Northwest Phoenix submarket clusters.

Asking rental rates market wide for retail properties remained steady at $14.52/sf/yr on a NNN basis. Asking rates remain highest in the Scottsdale submarket cluster, where they average $21.84/sf/yr and are growing steadily each quarter. By contrast, the lowest rates are found in the Maricopa County submarket cluster, which reported an average asking rent of $11.04/sf/yr.

The average sale price in the first quarter for retail investment assets was $180 per square foot. Cap rates averaged 6.9%. The largest sale took place in the North Phoenix/I-17 Corridor submarket, where Bethany Towne Center sold for $41.3 mil ($151/sf) to Goldman Sachs. Total dollar volume for retail asset sales in the first quarter was $200 mil from 83 transactions.

Key Transactions*

Target, 1625 E Camelback Rd., Downtown Phoenix, 50k sf lease
Burlington Coat Factory, 2650 E Germann Rd., Gilbert, 50k sf lease
Aspire Fitness, 4940-4980 W Ray Rd., Chandler, 37k sf lease
Mega Furniture, 2501 W Happy Valley Rd., Deer Valley, 34k sf lease
Ace Hardware, 13811-13823 N Tatum Blvd., North Scottsdale, 26k sf lease

*Source: CoStar Data





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