Retail absorption in the first half of 2021 doubles the total for 2020


The Greater Phoenix commercial real estate market is rebounding, with the first half showing positive net absorption that totaled more than double the amount absorbed in all of 2020 and marking the best half since 2018. Vacancy rates are falling in the retail sector and investment sales are also improving, according to Necklaces in Arizona.

The net absorption of commercial space for the first half of 2021 totals 496,542 square feet. This includes 249,645 square feet of positive net absorption during the second quarter. The net absorption volume posted in the first six months of 2021 is the highest since 2018. Leasing was strongest in the East Valley, where 399,172 square feet of new direct transactions were completed. In May, sporting goods company Sheels pledged to occupy the former Nordstrom space in Chandler Fashion Square. This will be the company’s first location in Greater Phoenix with an opening slated for 2023. Sportsman Warehouse signed a 32,019 square foot lease at the Chandler Pavilions, moving into the former Toys R Us space. Outside of the East Valley, ExtraSpace Storage signed the largest contract, covering 55,255 square feet in a former Safeway space in Surprise, Arizona.

READ ALSO: Macerich sells Paradise Valley shopping center for $ 126.5 million; major redevelopment package

The retail space vacancy rate fell 10 basis points in the second quarter to 7.4 percent. This is an increase of 10 basis points year on year. Scottsdale posted the largest decline in the vacancy rate in the second quarter. The zone’s vacancy rate is 110 basis points at 5.3%. West Valley posted the lowest vacancy rate for the second consecutive quarter at 5.0%. This is a drop of 40 basis points year over year. The highest retail vacancy is in North Phoenix, where 10.4% of the space is available, marking a 130 basis point increase year over year. Colliers notes a significant change in the inventory of retailers following the removal of the Paradise Valley Mall. The project will be added next quarter in the “under construction” category when the redevelopment of the shopping center begins.

Average rental rates ended the second quarter at $ 14.90 per square foot, marking an increase of 1.02% on the quarter and 1.98% year on year. All of Valley’s submarkets except North Scottsdale posted an increase in rental rates year over year. North Scottsdale posted a 2.1% rate cut between mid-2020 and the end of June 2021. The West Valley and Northwest Phoenix submarkets posted the largest year-over-year rental rate increases, jumping 7.9% and 7.1% respectively. The Scottsdale submarket has the highest rental rates, increasing 0.52% in the quarter to $ 25.10 per square foot.

Construction of new commercial buildings advanced during the second quarter with the completion of three projects totaling 188,470 square feet and another 382,505 square feet currently underway. The three completed projects have been 100% leased and include: two EOS Fitness facilities in Gilbert totaling 64,400 square feet and a 124,070 square foot Fry’s Marketplace at Village Grove at Verrado in Buckeye. Year-to-date, the market has added 419,490 square feet of new retail space to inventory. At this point, the Papago Plaza redevelopment in Scottsdale is the only inner-core project under construction. All other new projects are located in the South East, West Valley and North West submarkets, The East Valley has the most activity with five active properties totaling 126,562 square feet.

Interest in investing in Phoenix commercial properties improved during the second quarter. Transactions totaling $ 350 million were closed during the second quarter, bringing the total to date to $ 636 million in sales volume. The median price paid per square foot landed at $ 222. Drugstore sales were very active in the second quarter with 10 transactions totaling $ 52 million. The largest retail sale in the second quarter was the $ 162.5 million sale of Camelback Colonnade. The 1,098,685 square foot center in the Camelback Corridor has been sold by RED Development to Federal Realty Investment Trust. The same buyer bought Hilton Village from RED Development for $ 37.5 million ($ 388 / SF.)

The pent-up demand for retail activity eased as pandemic restrictions were lifted. This resulted in a 25% increase in retail spending from January 2020. Greater Phoenix remains the leading metropolitan area receiving immigration for the third consecutive year from July 2019-2020. This has resulted in increased demand from retailers to enter our market. Development in suburban areas accounts for over 80 percent of retail construction, as developers are actively working to keep up with the city’s expansion.


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