Q3 2019 Retail Market
- Greater Phoenix continues to remain in the Top 5 metros for job creation in the country, albeit with moderating growth. During the 12-month period ending in August, preliminary estimates show that employers added 57,800 net new jobs, an increase of 2.7 percent but below the 62,500-average increase over the first half of 2019.
- According to the BLS (Bureau of Labor Statistics), over-the-year nonfarm employment rose in 32 of the 51 metropolitan areas with a 2010 Census population of 1 million or more, while employment was essentially unchanged in 19 areas.
- Despite retail’s rough waters on a more national level, the Greater Phoenix retail market continues to perform. Retail vacancy, overall, remains below 10 percent at its current 7.0 percent. As of the end of Q3, vacancy has remained below 10 percent for 20 consecutive quarters.
- Rents ticked higher in the third quarter with asking rents ending at $15.40 per square foot, up 3.2 percent from one year ago.
- The investment market for local retail properties increased to $344 million in total transaction volume in the third quarter, up from first quarter’s $143 million and Q2’s $275 million. Median price per square foot increased 54 percent over-the-year to finish at $182.
- Cap rates, which trended higher in each of the past three quarters, increased 12 bps over-the-quarter to 6.71 and still well below the 8+ percent witnessed at the end of 2018.
Outlook: The Greater Phoenix retail market had an overall healthy third quarter, with positive absorption of 262,130 square feet and both low vacancy, 7.0 percent, and ongoing rent growth, 3.2 percent. With the local economy remaining healthy, and bolstered by sustained population and job growth, expanding retailers should continue to perform.
Real estate markets remained robust for most of the third quarter and the drag on real estate prices many were expecting, as a result of rising rates which reversed, has not materialized. With a more dovish Fed, deepening negative rates in Europe, demand for commercial real estate assets should continue to increase, especially as yields plummet and as investor need for cash flowing vehicles, due in large part to changing demographics, continues to rise.