The Greater Phoenix retail market improved in 2014, but at a more gradual pace than was originally forecast. While the local population is expanding and employers are adding workers, retailers have been expanding at a fairly conservative pace to this point in the cycle. One reason for this caution is the slow pace of new home construction. Developers have been slow to bring new units to the market, and much of the new housing is coming online at infill locations where there are existing retail options already in place. This trend is also true for multifamily construction, which has been on the rise in amenity-rich areas such as Chandler, South Scottsdale and Tempe. Looking ahead, the greatest boost to the local retail climate could be falling gas prices, which ended 2014 more than 40% lower than one year earlier. If similar savings were to continue, there could be as much as $1 billion in increased disposable income for Greater Phoenix consumers.
The Greater Phoenix retail market continued its modest pace of expansion, with net absorption hitting 713,000 square feet in the fourth quarter, following more than 685,000-square-feet in the third quarter. For the full year, net absorption was 1.8-million-square-feet, 25% lower than in 2013.
Metrowide vacancy fell 20 basis points in the fourth quarter, ending the year at 10.3%. Vacancy is now at its lowest point since 2008.
Shopping center prices continued to push higher in 2014, with the median price ending the year 37% higher than in 2013 at $110 per square foot.
After spiking in the third quarter, sales of shopping centers slowed by more than 30% in the final three months of the year. Despite the late year decline in sales velocity, the number of properties that changed hands in 2014 rose approximately 3% from 2013 levels. Since spiking in 2011, annual transaction activity of shopping centers has slowly crept higher.
While the number of shopping centers sold in the fourth quarter dipped, prices continued to trend higher. The median price in transactions in the fourth quarter was $114 per square foot, 7% higher than the median price in the third quarter. For the year, the median price reached $110 per square foot, a 37% rise from the 2013 median price. Cap rates have compressed as prices have pushed higher, averaging in the mid-7% range, approximately 50 basis points lower than in 2013.
To read the full Colliers Phoenix Retail Market Report 4Q14