Phoenix retail market turning the corner

The Phoenix retail market began to turn the corner during the fourth quarter of 2010 as vacancies dropped to 12 percent from 12.3 percent. That may not sound like much, but it is the first sign of quarter-to-quarter improvement in more than three years, according to Colliers International’s fourth-quarter Research & Forecast report for the Phoenix area. The drop in vacancies follows an “extended period of fundamental softening brought on by severe job losses, the bursting of the local housing bubble and excessive speculative development,” the report said. “With Phoenix forecast to record some of the nation’s most robust employment gains in 2011, retail conditions will continue to improve.” Still, development of new space will remain minimal due to financing challenges, according to Colliers. “This lack of construction will drive tightening retail vacancy over the next few years, ultimately bringing the rate closer to the metro area’s long-term norm.” Three submarkets led the vacancy improvements, Northwest Phoenix (down to 9.1 percent from 9.7 percent in fourth-quarter 2009), North Scottsdale (down to 9.8 percent from 10.4) and West Phoenix (down to 12.3 percent from 12.7). Vacancies in a number of other areas, including downtown Phoenix increased year-over-year. Despite the recent improvement in tenant demand, however, rents continue to dip. Asking price fell 1 percent during the fourth quarter to $15.87 per square foot. Current rates are down about 20 percent from the pre-recession peak, Colliers reports.

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