PHOENIX—When the recession was in full swing, one of the markets that took the biggest hit was Phoenix. Residential and commercial real estate were overbuilt in the market, and the retail sector became a casualty.

That's all changing now, as retailers are starting to expand into the market. Retail real estate vacancy rates in Phoenix are currently around 10.5% and expected to fall below 10% by the end of the year, explains Tyson Switzenberg, vice president and retail broker lead in Phoenix for JLL (RECon booth C1001). That's a marked improvement from two years ago, when they were around 13.5%.

“What we're seeing is a lot of relocations of underperforming stores to better real estate," says Switzenberg.

Right now retailers that are already in the market are focusing on filling gaps within the core and backfilling vacancies left by former tenants in shopping centers. There isn't a whole lot of new development, so space is tight.

“We're seeing a lot of retailers relocating out of underperforming stores into higher profile real estate,” Switzenberg explains. “The Phoenix retail market got into trouble in 2007 and 2008, when retailers were getting out ahead of rooftops. Retailers are cautiously looking in growth areas but are going to make sure that the customers are in place before committing.”

There are some concepts constructing new stores, though. Switzenberg points to discount grocer WinCo Foods and Sprouts Farmers Market as two chains looking to build and expand. While there are some concerns about potential grocery store closings in the area due to the parent company of Albertsons acquiring Safeway, Switzenberg says many of those closings could easily be backfilled by concepts like Planet Fitness and Blast Fitness, as well as furniture retailers such as, Ashley Furniture and Living Spaces.

He uses local grocery Bashas', which has closed stores in the area, as an example, citing that many of the vacant space were filled by discount retailers like Big Lots, 99 Cents Only Stores and Dollar Tree. Some of the D and C centers that have been passed over by retailers for one reason or another have found non-retail uses to take up vacancies or have been demolished altogether and converted to Multifamily, offices and/or charter schools.

And as it is in many parts of the country, the quick-service restaurant sector is making a major growth push in Phoenix.

“Quick-serve restaurants are booming,” Switzenberg insists. “That sector is going crazy, and flourishing. We have new concepts entering the market, it seems like every week, and they do extremely well in the market.”

As long as the market stays affordable and there isn't another overzealous building boom, Switzenberg says that the rebound should continue.

“Our housing market has stabilized, and everyone is cautiously optimistic,” he says. “Over the last year, Phoenix has really rebounded, and is one of those markets that will always continue to grow because of the weather and affordability.”

Instant Insights /

Phoenix Retail Market Goes From Bleak to Bright

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