Phoenix Retail Leasing Flat Lines in Fourth Quarter

Phoenix retail leasing activity flat lined at the end of 2018 with relatively flat leasing activity and an unchanged vacancy rate. This was a surprise following a strong performance for the first three quarters of 2018. Despite the blip in activity, the Phoenix retail market closed the year strong with vacancy at 7.8%, an 80 basis point year-over-year decrease, and 2.1 million square feet of net absorption, according to research from Colliers International. As a result, 2018 was the second strongest year for next absorption since 2013.

“There were a lot of purchase transactions and lease deals in the earlier part of the quarter, and when the latter half of December hit, the market slowed down,” Thomas M. Brophy, research director of Arizona at Colliers International, tells GlobeSt.com. “It doesn’t seem like there is any kind of trend so far. We have moved at a fine clip at the first part of this year, and it feels like we haven’t skipped a beat. It was a 20-day pause in December.”

The macro economic volatility in the US, which included a yo-yoing stock market, a government shutdown and an additional increase in interest rates, played a role in the market pause, according to Brophy. “The stock market went up and down through most of December, and people were concerned about the trade talks at the end of the year,” he says. “When you have that much action, it will cause people to pause for a second.”

Big picture, however, the retail market is strong, and Brophy expects 2019 to perform just as well, thanks to robust population and wage growth. “Maricopa County has been the number one county for growth in country,” he says. “We have beat Texas’ Harris County, which is where Houston is. We have been adding 221 people per day. For retailers, body count is important. Second, Arizona has also led for wage growth at the small business level. Where ever you see increasing population and increasing wages, retailers are going to respond.”

Tempe, Chandler and Gilbert saw the most retail attention in 2018. Those are also areas with strong population and job growth and where there is retail supply. “Those are areas where retailers are focusing. In a general sense, real estate has been increasing as measured as I have ever seen it in Arizona,” says Brophy.

While the Phoenix market is strong, don’t expect a boom in 2019. Rather, it will be more of the same, and could show retail to be a stable asset class. “Retail is a steady performer, and it continues to be a steady performer,” says Brophy. “Because we have sustained higher-than-expected population growth and higher-than-expected wage growth, the retail market will continue to be a well-performing market.”