Retail Boom Continues as Office, Industrial Sectors Lag

PHOENIX-Retail is hot. Office and industrial are not. That’s the word from the experts at Grubb & Ellis Co. who monitor the valley’s changing real estate scene. But despite the soft showing in some sectors during 2002, the forecast for the future remains bright.

A growing residential and employment base, which kept retail growth steady for the past 10 years is expected to continue, particularly along the valley’s freeway corridors, John Applebe, senior vice president of Grubb & Ellis’ retail group, tells GlobeSt.com.

“We’ve had a constant inventory capable of being absorbed over time,” he said, noting that more new rooftops in the Leveen, East Gilbert, Queen Creek and Pinal County areas will bring added retail growth to the outlying areas of the valley. Several master-planned communities around the future site of the Loop 303, particularly in the Lake Pleasant area, will mean new retail development there as well, he added.

The pace has yet to pick up for the valley’s office and industrial space, however.”After a record year for absorption in 2000, we got hit in the head,” Jeffrey Hartland, a Grubb & Ellis senior vice president in the office group, tells GlobeSt.com. “This year, we’re at negative 500,000 sf. It couldn’t get gloomier.” Overbuilding of office space is partly to blame but the economic slowdown, which kept firms from expanding, has made this the hardest hit sector of the market, said Hartland, who described office market conditions as “painful.”

On the industrial end, vacancy rates are hovering at 10.8 % with about 25 million sf currently on the market. That industrial glut has all but brought speculative construction to a screeching halt in the valley, leaving the industrial market open mainly to build-to-suit clients.

“Demand is certainly off,” Anthony Lydon, senior marketing consultant with Grubb & Ellis tells GlobeSt.com. In 2002, only 500,000 sf of new industrial product came on line. Two years earlier, three million sf of industrial space was built in the valley.

While the valley’s office and industrial market isn’t even close to smoldering, there are some hotspots. The northwest and southeast valley, where new housing starts have bolstered the retail sector, the office and industrial market is holding its own. Scottsdale s also is faring well with its office space even as other east valley cities struggle to fill vacancies.

But the valley’s housing and retail growth signal that a turnaround is not too far in the future, the experts said. As the economic pace picks up throughout 2003, what’s not hot today could be on fire by 2004.