2017 Expected to Bring Economic Growth to Balance Struggling Retail Sector
Phoenix, Arizona – Colliers International is reporting the Greater Phoenix retail market experienced positive net absorption in fourth quarter of 2016, pushing vacancy rates lower in a trend that prevailed through most of 2016.
Net absorption totaled approximately 545,000 square feet in the fourth quarter, bringing the year-end total to more than 1.5 million square feet. This net absorption outpaced 2015 and provided a year-end vacancy rate of 9.5 percent.
Asking rental rates declined in the fourth quarter, but year-end rental rates were still 1.6 percent higher than a year ago. The Phoenix metro area needs a surge in absorption during 2017 to motivate any significant boost in rental rate growth.
Retail construction escalated during the second half of 2016 and the year brought approximately 1.4 million square feet of new projects. This is the largest annual total of new retail construction since 2009. Approximately 500,000 square feet of the new construction delivered in 2016 was occupied by Fry’s Food, which is implementing a significant expansion plan.
Shopping center sales for 2016 outpaced 2015, but slowed during the last three months of the year. Prices rose and cap rates compressed in 2016, which highlights the improving outlook for the Metro Phoenix retail market. The region experienced a nearly 20 percent increase in dollar volume of sale transactions from 2015 to 2016, due in part to a spike in higher priced transactions over $40 million. Grocers are expanding in this marketplace, so we anticipate an increase in grocery-anchored centers in 2017 and beyond.
The upcoming year is expected to bring more modest improvements to the retail real estate sector. The local housing market is gaining traction and the overall metro Phoenix economy is growing. These factors will support additional retail spending. However, the nationwide retail market continues to experience store closures because of online shopping trends and poor performing locations. Our city escaped the recent cuts by Macy’s, but any significant store closure announcements will dampen the projected growth that 2017 economic improvement will bring.
A copy of the full retail report can be accessed by clicking Here.