Phoenix retail market posts lowest vacancy in seven years

Increases in population and consumer spending are driving the strength of a key Southwestern market.

The Greater Phoenix retail real estate market posted a robust fourth quarter, with strong investment sales, increasing rental rates and the lowest vacancy rates in seven years, according to a report released by Colliers in Arizona. Increased population, strong job figures and improving consumer spending all are contributing to an increasingly improving retail real estate market.

Fourth quarter 2021 ended with retail vacancy at 6.8%, marking a 40 basis point decreased from third quarter. This is the lowest level of vacancy posted in Greater Phoenix in the past seven years. 

Northwest Phoenix finished the year with the lowest vacancy of all submarkets at 4.7%. Scottsdale submarket finished the year with 5.3% vacancy, a decrease of 100 basis points year-over-year. The largest decline in vacancy year-over-year took place in the Downtown submarket, which finished at 6.1%

Net absorption of retail space during fourth quarter reached 530,082 square feet, bringing the 2021 total to 1.2 million square feet. The 2021 net absorption figures surpassed 2019, pre-pandemic levels.

Other highlights from the report are below.

• During the month of December, the number of quick-service restaurants that opened outpaced closings by 38%
• The number of new leases exceeding 10,000 sq ft. in the fourth quarter exceeded third-quarter levels by 30%. The largest lease signed during the fourth quarter was American Furniture Warehouse committing to 149,609 sq. ft at the site formerly occupied by Costco at Christown Spectrum
• Approximately 217,000 sq. ft. of new retail space was completed and added to inventory during the fourth quarter This brought the 2021 total of new deliveries to 809,467 sq. ft. Two different Fry’s Marketplace stores were delivered during 2021.
• Currently, 524,220 sq. ft. of new products are under construction, below the five-year average of 842,363 sq. ft.  Construction levels will drastically increase in 2022 with the announcement of three large, proposed shopping centers expected to be started this year.  Construction is heavily focused in the East Valley and West Valley, where 81% of the total announced projects will be located.
• Asking rental rates reached $15.28 per sq. ft., marking an increase of 3.73%compared to year-end 2020.
• Investment sales reached nearly $2 billion in 2021, with 31% of that total being transacted during the fourth quarter. 
• Fourth-quarter transaction volume surpassed third quarter by 15.8 percent.  The 2021 transaction volume marked an increase of 120% over 2020 and this past year was the best performing since 2015.
• The strong demand for retail investments drove the median price per square foot up 16.1% during 2021 compared to 2020. The largest sale of the quarter was the $65 million sale of Arcadia Crossing, a 476,743-sq.-ft. center. 

The outlook for Greater Phoenix retail market remains strong. Population growth in the Valley is attracting retailers from across the nation, including new restaurant concepts and store innovators. A continued strong economy and consumer spending will ensure the market thrives.