Tucson Retail: Not as Bad as Phoenix

"The thing that most people don't understand is typically the association that whatever is happening in Phoenix doesn't necessarily mean it's happening throughout the rest of the state," explains Scott Soelter, senior vice president with Grubb & Ellis Co.'s Tucson office. "Tucson hasn't had the peaks and valley Phoenix experiences. Half the time we're down here saying 'wow, we wish we were Phoenix,' and the other half we're saying we're thankful we're here."

Soelter and Nancy McClure, senior vice president with CB Richard Ellis' local office, say the general consensus is gratitude that Tucson isn't Phoenix. Though Tucson never had the barn-burning housing and retail development Phoenix did, it also isn't plunged into the huge slowdown, either.

"Tucson didn't get over-retailed in the last construction boom," McClure explains. "The Phoenix area got very overbuilt, with the housing market on fire and developers going to the sticks to get the centers up before the houses came along," she adds. "A lot of those projects are hurting now."

Furthermore, McClure notes, given Tucson's size, lenders were more careful about backing projects. As a result, "if you had a housing development on the outskirts, you'd have one neighborhood center, not three," she comments.

Not only were the lenders a little cautious. Soelter says, city ordinances made developing big boxes very challenging. The ordinances were worded in such a way that super centers were kept out of the mix. But it also meant big box retailers were somewhat shy about building in the city.

The result seems to be a lack of big box space, but retailers that are vying for the available stuff. McClure says she's seeing some demand for the empty space left by Circuit City on Oracle Road and Broadway Street, and Shoe Pavilion on Oracle Road. She's also shopping around the old Mervyn's building on Broadway and says retailers are showing some interest in the property.

Soelter acknowledges that the Mervyn's should move quickly, given it's on a good corner. But the problem could involve newer developments that were leased at the time of groundbreaking, but tenants didn't show up upon completion. "Locationally, these aren't like the Mervyns," he remarks. "These are out on the peripheries and they're going to struggle."

McClure, in the meantime, acknowledges the hope that the vacant space will fill up during 2010. "That activity level would give everyone confidence this year that a lot of spaces will be spoken for, how that we're in recovery mode," she comments.

A more cautious Soelter comments that positive trends in 2010 can be expected as tenants begin taking advantage of opportunities. However, until jobs and employment come back, housing and retail won't come back, either.

"There are regions holding the line better than us because their economies are different," he remarks. "We're a younger, newer area out here, and we'll struggle until we can diversify our job base."