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

Impressive first half followed by flat perfomance 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.
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Golden St. John

Vice President

Phoenix

As a vice president with Colliers International, I specialize in tenant representation, project leasing and building sales within the industrial, office and retail property types. Serving as a trusted advisor, my diligent and detail-oriented approach aids clients in making strategic real estate decisions. Outlining the pros and cons of each situation, I emphasize the long-term impact on a client’s business, rather than focusing on a single transaction.

Tenant clients benefit from my first-hand experience working with landlords and developers. My understanding of their mindset, coupled with creativity, attention to detail and proactive problem-solving, enables me to successfully represent each tenant’s best interests in lease negotiations.

I serve my clients with reliability, integrity and in-depth market knowledge, building long-term relationships and inspiring referral confidence. My diverse background and expertise has uniquely positioned me to expertly serve my clients’ varied requirements across multiple property types.

My career as a commercial real estate agent began in March 2004, later obtaining an associate broker’s license in 2013. Prior to joining Colliers, I was a director with Cushman & Wakefield for four years, focusing on landlord and tenant representation for industrial, retail and office properties. Previously, I served as associate broker and senior leasing director for The Corritore Company for 10 years, specializing in high-end retail project development.

I have been involved with the consultation and lease-up of several of the highest profile retail projects in metropolitan Phoenix, including Tempe Marketplace, Desert Ridge Marketplace, Westgate Entertainment District and Scottsdale Waterfront, among others.

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