Velocity Retail's Cheatham says retail vacancy rates in Phoenix will soon dip to the single digits.

PHOENIX-The local retail real estate market started making a recovery this year and 2013 looks to be even stronger, according to Dave Cheatham, managing principal at real estate services firm Velocity Retail.

“In 2013, you’re going to see all categories of retail get back into the game of expanding,” he told “I’m pretty excited about 2013, probably more excited than I have been for five years.”

The retail vacancy rate in Phoenix is currently at 12.1%, Cheatham says, and he claims that in the next 18 months it will drop down to the single digits. This year’s fourth quarter is the fifth one in a row with positive retail-leasing absorption. That comes after 12 consecutive quarters of negative absorption that began in Q4 2008.

So far, the main retailers to take up space in the market are deep discounters like Ross Dress For Less and dollar stores, but Cheatham sees other sectors getting back into the expansion game. For example, his firm signed a new Old Navy lease in Tucson this year, one of only six new stores the chain opened in 2012, he says.

One thing that has helped is a lack of new supply coming online. “If we’re constantly absorbing space and not creating new space and creating vacancy, we’re going to get back to healthy,” Cheatham remarked.

On the landlord end, there are still a lot of shopping-center owners giving out rent concessions, but “the market is tightening up.” One challenge that landlords face is filling some of the big boxes vacated during the recession, and many will have to look at alternative uses to traditional retail tenants to do so, Cheatham said.

Right now the northern parts of the Metro area are performing the strongest, while Central Phoenix and the Southeast Valley still need some help, he observed. But an improving job market that is not as reliant on construction should assist in their improvement.

For its part, Velocity did 200,000 square feet of deals in November, most of them in the Phoenix area. They included a 50,000-square-foot Burlington Coat Factory store in Scottsdale, and Mega Furniture, in Tempe, at just under 26,000 square feet.