Greater Phoenix retail real estate market levels off at close of 2018 reports Colliers International

Impressive first half results followed by flat performance in 4th quarter

Phoenix, February 11, 2019 – Colliers International reports the Greater Phoenix retail real estate market began 2018 with impressive sales and leasing but closed out the year with a relatively flat performance in fourth quarter.

Retail vacancy dropped 10 basis points during the fourth quarter to 7.3 percent. The vacancy now rests 80 basis points below a year ago. The rate has dropped each of the past eight quarters, though the improvement has leveled off a bit. 

The city posted its weakest fourth quarter net absorption figures since 2015. Net absorption for this traditionally strong quarter totaled 261,500 square feet. Since 2010, tenants have created fourth quarter net absorption averaging 750,000 square feet. Last year, fourth quarter net absorption topped 1.2 million square feet. Despite the fourth quarter slowdown, the retail market accumulated nearly 2.1 million square feet of net absorption in 2018. This makes 2018 the second strongest year for net absorption in the past five. 

Rental rates rose 30 basis points during fourth quarter, finishing up the year at $15.02 per square foot. This is approximately 3.2 percent higher than year-end 2017. Rents in Scottsdale and North Scottsdale submarkets are the highest at $23.77 and $22.17 per square foot, respectively. North Scottsdale rents rose 11.8 percent during 2018 and the Airport area increased its rental rates by 7.9 percent. Scottsdale also posted strong increases with a 5.7 percent elevation in asking rents.

The investment market for retail properties slowed during fourth quarter, when total transaction volume was $84.7 million. This is quite a fall from third quarter’s transaction volume of $201.6 million. Despite lower sales volume, the median price per square foot for the year increased seven percent to finish 2018 at $134. This past year was a bit of a rollercoaster for investment sales. They were strong in first quarter and fell off during second. They rebounded during third quarter, only to slow down again in fourth quarter. The number of shopping centers that sold decreased by approximately 25 percent of the year to end 2018 at $495.3 million in sales.

Cap rates trended higher for each of the past three quarters, which aligns with the gradual rise in interest rates. Fourth quarter cap rates ended at 8.22 percent, up from third quarter’s average of 8.09 percent.

Fluctuations in the market aside, Greater Phoenix experienced a very healthy 2018 in the retail real estate sector. The local economy remains quite healthy and the housing market is gaining momentum. Expanding retailers will want to take advantage of that growth, especially restaurants and other small-space users who benefit when household incomes are on the rise.  The area’s steady improvement in property fundamentals has fueled investment activity but increasing interest rates will drive up cap rates as the next 12 to 14 months unfold. Better properties will continue benefitting from cap rates in the low to mid-7 percent range while higher risk investments will experience the cap rate pressure.

About Colliers International Group Inc.
Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 13,000 professionals. Colliers is the fastest-growing publicly listed global real estate services and investment management company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management services platform, has more than $25 billion of assets under management from the world’s most respected institutional real estate investors.

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial Property Executive for two years in a row.

Colliers is led by an experienced leadership team with significant equity ownership and a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years.

Learn more about how we accelerate success at, Twitter @Colliers and LinkedIn.

Colliers International in Arizona has served clients locally and globally for more than 35 years.