PHOENIX—Colliers International recentlyreleased its second quarter retail caught up with Colliers' researchmanager Pete O'Neil to get his take on thenumbers.

| Whyare we seeing a bounce-back after such a slow start?


O'Neil: The retail rebound is a continuation ofgradually improving economic conditions in the Greater Phoenixmarket. Two industries in particular—restaurants andhousing-related retailers—are serving as the best examples of thistrend. In recent months, companies that benefit from populationgrowth have been expanding in the Greater Phoenix market. Companiessuch as Conn's, At Home and the various mattress retailers havebeen expanding rapidly in anticipation of greater demand. Local andnational restaurants have also been expanding as the economyimproves and disposable income increases. Because these businessesoccupy small footprints, any one move-in might not generateheadlines, but the aggregate expansion is making a dent in thelocal vacancy rate.

| Even with e-commerce, we're seeingvacancy decline. Why is that? Is there a certain sector of themarket picking up?


O'Neil: The primary reasons we are seeingvacancy decline is that retail sales are pushing higher andconsumer sentiment is improving. Restaurants are a good example ofthis. Restaurants are not really impacted by e-commerce, but theyare impacted by meals eaten at home. As the economy improves,consumers are more likely to splurge on a night out rather thanstaying in. Retailers are expanding in response to the heightenedconsumer demand already present in the marketplace as well as anexpectation that growth will continue to accelerate as the economyrecovers and the housing market slowly returns to form. Inaddition, we are beginning to see some leasing of the large boxesthat were vacated over the past several years. Some of these spacesare being leased to other retailers, while others are beingrepositioned as alternative uses, including multifamily, office ormedical office.

| Sales of shopping centers haveslowed, yet prices are pushing. What is the reason for that?


O'Neil: More than anything else, the slowdownin sales activity and the rise in pricing are because there arefewer distressed properties being sold. If we looked only attransactions involving stabilized assets, sales activity has pickedup considerably from year-earlier levels, while sales of distressedproperties have been cut by more than half. Since there are fewertroubled properties changing hands, these deeply discountedbuildings are accounting for a smaller share of transactionactivity. In addition, the outlook for local retail is improving,supporting pricing. The median price for stabilized buildings inthe first half of 2014 is up approximately 15% compared to thefirst half 2013.

| What do you see on the horizon forretail for the rest of the year in these categories?


O'Neil: Tenant demand for retail real estate istypically strongest in the fourth quarter as merchants ramp up tomeet the demand of the holiday shopping season. We anticipateshopping center vacancy will continue to tighten in the comingmonths, as it has in each of the past two years. After expanding atdouble-digit annual growth rates in each of the past four years,e-commerce will continue to accelerate in the years ahead. It isworth noting however, that online purchases still account for asmall percentage of all retail sales activity. Further, thisactivity is concentrated in a handful of segments—books and musicto name a few—but is not taking the place of traditional brick andmortar retailers.

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