Economic growth sparks retail absorption

Phoenix, October 17, 2017 – Colliers International reports Greater Phoenix posted a very strong third quarter 2017 in the retail real estate sector, with highest net absorption in several years and vacancy dropping to its lowest level in nearly a decade.

Net absorption during third quarter 2017 totaled more than 680,000 square feet, marking the strongest quarter in four years. This brings the year-to-date net absorption figure to more than 1.6 million square feet, and Colliers anticipates the year will finish on pace with more than 2 million square feet of retail net absorption in Greater Phoenix.

After holding steady during the first half, vacancy dipped this past three months to 8.9 percent. This is the lowest vacancy rate in eight years. Home furnishing stores stimulated net absorption in the market. American Freight committed to its first four stores in Arizona this year. The growth of home furnishing retailers is a good signal of a stronger housing industry and growing population.

Asking rental rates dropped slightly in third quarter, but are generally higher than previous quarters in recent history. Asking rental rates are up 3.2 percent to $14.53 per square foot for the past 12 months. Scottsdale continues to post some of the strongest rental rates. North Scottsdale rates have risen more than six percent this year and are approaching $20 per square foot.

Sales of shopping centers slowed by 40 percent during the third quarter. While sales activity cooled, the median price rose more than 20 percent last quarter to $146 per square foot. The bulk of properties sold during third quarter were $10 million and less.

Median price for retail centers sold in all of 2017 is $118 per square foot, which mirrors the level in 2016. Cap rates have averaged 7.5 percent this year, up 50 basis points from the 2016 average.

As 2018 approaches, retail experts will keep a close eye on struggling retailers that might close underperforming stores after the busy holiday season. Toys R Us, which already announced its bankruptcy, has 10 sizable locations in Greater Phoenix, totaling more than 250,000 square feet.    

The outlook remains good for Greater Phoenix and its retail market. The city is one of the nation’s leading areas for employment and population growth, which fuels retail activity. Fourth quarter tends to be the strongest in the retail real estate sector, so the city should finish 2017 in great shape. 

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