Fourth quarter 2017 brought spike in net absorption, tightened vacancies and rising rental rates

Phoenix, February 6, 2018 – The fourth quarter of 2017 brought a spike in net absorption of retail space in Greater Phoenix, bringing the total for the year to more than 2.8 million square feet. This was the highest level of annual net absorption posted since 2007, according to the year-end retail report released by Colliers International in Greater Phoenix.

Net absorption for fourth quarter exceeded 1 million square feet. A large portion of the absorption took place in high-income, fast-growing areas of the Southeast Valley area. Chandler and Gilbert combined to account for approximately 20 percent of the total net absorption for Greater Phoenix in 2017.

Retail vacancy fell 50 basis points during the fourth quarter, ending the year at 8.4 percent. This is a decrease of 90 basis points from year-end 2016. Retail vacancy in the West Valley dipped 40 basis points in 2017 to just 6 percent. This is due in part to the growing economy in the West Valley, spurred partially by the extension of the Loop 303 freeway.

Increased absorption and falling vacancy rates have spurred a rise in rental rates. Asking rental rates advanced 4.6 percent in 2017, finishing the year at $14.64 per square foot. While rates increased the previous two years, rents rose at a steeper pace during 2017. The East Valley rental rates gained 5.8 percent in 2017, following a 4.1 percent increase in 2016.

The sale of shopping centers slowed during 2017, down 4 percent from 2016 levels. Investment sales increased during fourth quarter over third. The median price in 2017 dipped below 2016, primarily because properties changing hands included more high-vacancy centers being sold as lease-up opportunities.

The median price during 2017 was $114 per square foot, which represents a 6 percent decline from 2016. Cap rates fell slightly during fourth quarter, averaging 7 percent. The average cap rate for shopping center transactions throughout 2017 was 7.4 percent, which is approximately 40 basis points higher than the 2016 average.

Greater Phoenix is expected to post a strong 2018 performance, as the economic outlook calls for expansion and the market remains healthy. Metro Phoenix added more than 300,000 jobs since 2012, including 30,000 positions in the retail sector.

The local housing market is gaining momentum, including the construction of new homes. This will help support the local retail climate. Since the economy has grown, restaurants have led the way in retail leasing as population expands and people have more disposable income.

Restaurants will be a major contributor to further growth this year, as will some grocers. German grocer Aldi is expected to enter the local market following its plans to open a regional distribution center in Goodyear, Arizona.

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