Economic uncertainty combined with online shopping is having an impact on the metropolitan Phoenix retail market study prepared by CBRE Global Research and Consulting. As evidenced by the amount of available retail space, due in large part, to the change in saving and spending habits and the growing presence of internet sales according to the Q3 2013 market study. At some point consumers will return to a much different market. For now, it is a question of when and how strongly they re-enter the market.

The CBRE metropolitan Phoenix retail market study reflects both shopping centers and buildings greater than 300,000-square-feet. The overall vacancy rate at the end of third quarter was 10.5%, a decline of 50 basis points from 11.3% Valley-wide, one year ago.

The Q3 vacancy rate in metro Phoenix for strip and in-line centers was 18.7%, neighborhood centers reported 12.2% vacancy, followed by community centers with 10.8% vacant space and power centers with 5.9% vacancy. There is currently 415,000-square-feet of retail space under construction in metro Phoenix, compared to 923,475-square-feet one year ago.

The availability of big box space remains a concern for property owners throughout the Phoenix area as the number of available spaces continues to impact vacancy. At the end of Q3 there were 133 spaces greater than 20,000-square-feet, totaling 4.9-million-square-feet of available space. One year ago, there were 135 spaces totaling 5.3-million-square-feet. Premium spaces and locations are receiving considerable interest from retailers.

In Q3, metro Phoenix did not deliver any new retail product. The last time this happened was Q2 2012. As a comparison, the delivery of new retail space in metro Phoenix from 2000 through 2010 average was 5.5-million-square-feet per year with a high point in completions occurring in 2007 when 1.6-million-square-feet of new product was brought to market.

In Q3, metro Phoenix retail market recorded positive absorption of 385,625-square-feet and has absorbed 1.1 million-square-feet with 3.7-million-square-feet of gross activity for the year. The retail market has now recorded positive absorption in eight of the last nine quarters. One year ago, the market absorbed 1.2-million-square-feet with 3.5-million-square-feet of gross activity. In Q3, 10 of the 12 submarkets reported positive absorption led by Northwest Phoenix with 125,715-square-feet and Paradise Valley with 88,152-square-feet. Submarkets with the negative absorption were Sun City with 29,750-square-feet and East Phoenix with 12,155-square-feet.

The average net asking lease rate among existing retail centers in metro Phoenix at the end of Q3 was $15.47 per square foot down from $15.83 at the end of 2012. This compares to $16.10 per square foot one year ago and $15.95 per square foot two years ago. The submarket with the highest average asking rate was Paradise Valley which posted a rate of $24.84 per square foot in Q3.

To read CBRE’s full 3Q Retail report and other 3Q Reports from CBRE in Phoenix and Tucson click here: https://www.cbre.com/en/research/Pages/default.aspx

It’s the demand, not the supply, stupid! That’s what a former Clinton and Obama administration official, Larry Summers, said was behind the economy’s four years of weak growth. This quote comes to mind while reading the CBRE Industrial Report from CBRE’s Global Research and Consulting Group for 3Q in Tucson.

For this reason there is almost no speculative industrial development. Slowly and steadily, the inventory of functional industrial building in Tucson has been decreasing, and seeing positive absorption over the past seven consecutive quarters. It seems for some users with specific needs, it is too late to lease but still too early to build. Despite the existence of several large blocks of distribution space being available, the demand for the larger warehouse and distribution buildings is still weak.

Positive Absorption Yet Again

CBRE reports the Tucson Industrial market finished Q3 with a vacancy of 11.5% for buildings over 10,000 square-feet, excluding governmentally owned and operated facilities, totaling 34,674.685-square-feet. The vacancy rate is trending down for the eighth consecutive quarter. In 3Q 2012 there was a 12.4% vacancy rate, showing a decrease of nearly one percent year-over-year for industrial vacancy.

Year-to-date, CBRE reports Tucson had a reported 328,383-square-feet of positive net absorption. Third quarter accounted for 53,383-square-feet (16%) of that and looking forward to more positive absorption in fourth quarter 2013. Warehouse and distribution accounted for 14,221-square-feet (26.6% quarterly) of positive absorption; and R&D and Flex ended third quarter with 22,942-square-feet (43% quarterly) of positive absorption. This is the seventh consecutive quarter of positive absorption for the sector, with only two submarkets reported negative absorption, Northeast and Southeast.

The absorption is coming from aviation, mining, call centers and local infrastructure projects primarily, all major factors in the stimulation of the local economy. Although job growth is slow, these business sectors are steering things in the right direction.

CBRE reports two industrial properties under construction in the third quarter. The largest is a build to suit located at Oracle Road and Tangerine Road in Oro Valley. This is the 55,000-square-foot Securaplane plane to be delivered December 2013. Click here for full story reported June 4, 2013.

A 7,447 square-foot class B warehouse building for Blue Bell Ice Cream at 9398 E Old Vail Road was delivered in September. Click here for full story.

Notwithstanding positive absorption and lower vacancy rates, rental rates have also dropped. The third quarter reported average asking rate was $0.47 per square foot per month for metro Tucson area. This is $0.06 lower than second quarter 2013 and $.08 lower than 3Q 2012. Rental rates may start to see an increase however, as the vacancy rates continue a downward trend.

3Q Top Industrial Lease Transactions:

116.840 SF	Global Solar Energy	8500 S Rita Road, Tucson	Click here for full story
42,549 SF	TMI Acquisition	1625 S Euclid Ave, Tucson	Click here for full story
23,552 SF	Cintas Corporation	4755 S Coach Dr., Tucson
21,195 SF	Goodwill Industries	3105 E 36th Street, Tucson	Click here for full story
19,749 SF	Hensley Beverage Co.	1085 W Grant Rd, Tucson	Click here for full story

To read CBRE’s full 3Q Industrial report and other 3Q Reports from CBRE in Phoenix and Tucson click here.

Hong Kong attracted significantly more cross-border retailers than in any other city in 2012, making it the world’s most attractive retail market, according to a report by CBRE Global Research and Consulting. The firm annually maps the global footprint of 320 world retailers. These retailers targeted a wide range of locations in 2012 CBRE says, with 81% of the 208 cities surveyed seeing at least one new retailer entrant last year.

Hong Kong was by far the most sought-after city, with 51 new market entries from all sectors and not just the high-end fashion brands that have traditionally targeted that market. Followed by Germany with 41 new entrants, Ukraine with 38 and Brazil with 30 new entrants. Poland, in fifth place attracted 28 new entrants in eight cities, although Warsaw was by far the most significant target.

Canada was in joint sixth place with the United Arab Emirates, with all but four of the 25 new entrants in Canada originating from the U.S., an ongoing trend since the start of the recession with U.S. retailers targeting Canada because of its relatively strong retail growth and its close proximity to the U.S. home market.

These new entrants are principally from Europe, but also from the U.S., Japan and South Korea. Hong Kong provides an opportunity for retailers to capitalise on the emerging middle class population and tourists from mainland China. Hong Kong is often used as a launch pad for brands entering the region although increasingly retailers are entering Chinese cities directly. While luxury brands led the way in 2012, retailers from across the spectrum opened their first store in the city last year, including Pierre Cardin, Forever 21 and Cos, according to CBRE.

American retailers are by far the most global, according to the firm, with Italy, the U.K. and France making up the second tier of major exporters. Traditionally, U.S. retailers have focused on Asia and Western Europe markets, but increasingly they are targeting the Middle East (which made up 18% of new entrants by U.S. retailers in 2012), central and Eastern Europe (17%) and Latin America (10%). Retailers from Italy, the U.K. and France are focusing mainly on expansion into other European countries, although Asia is also a key target fro French and British retailers, according to Peter Gold, managing director of cross-border EMEA retail at CBRE.

Mature markets dominated retailers’ expansion plans last year, although five emerging markets made the top 20. Kiev was in second place, with 39 new entrants. São Paulo (with 25 new entrants), Iasi (with 19), Muscat (17) and Ho Chi Minh City (15) and New Delhi (14) also were important target markets fro retailers.

Notable by its absence from the Top 10 was China which attracted only four new retail entrants, including Ted Baker and Forever 21, even though there were around 100 new non-cross border entries in the 16 Chinese cities surveyed.

 

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