The vacancy rate for retail space in the Valley, including regional malls, at the end of 2000 was 5.25%, according to a new survey by CB Richard Ellis. The rate was up from 4.5% at the end of the third quarter.

The slight increase in the vacancy rate is mostly attributable to new space that was brought to market during the fourth quarter, says Judi Butterworth, first VP in the retail division of CB Richard Ellis. While most projects were heavily pre-leased, not all new space was filled at opening.

More than 1.6 million sf of space came onto the market in the fourth quarter, according to the survey. For the year, more than 4.5 million sf was built in the Valley, the most in more than a decade.

The Mesa/Chandler/Gilbert area saw the most new activity during the year, with more than 1.5 million sf of new retail space, nearly one million of that during the fourth quarter alone. Scottsdale was close behind, with 1.16 million sf built during the year.

The tightest submarket is east Phoenix, where the vacancy rate is down to 2.34%, while the one with the most space was northwest Phoenix, where the rate climbed to 9.11%.

Butterworth expects the retail vacancy rate to increase slightly during 2001, as the market struggles to absorb the glut of retail space being vacated by several grocery store chains, and the closure of Ward's and Office Depot. Expect to see some of the Valley's older retail locations go through major transformations during 2001, Butterworth says, as mature space is converted into back-office and industrial use in some areas.

Even with the vacated space coming on, expect to see even more new retail space built during 2001 than even was developed during 2000, she says. Westcor's regional mall in Chandler should come on-line during 2001, adding 1.3 million sf to the portfolio, and the Desert Ridge retail project should add another one million sf. Currently, there is more than 6.1 million sf of new retail space under development in the Valley.