Phoenix Retail Market Officially Rebounds
The Phoenix market was among the hardest hit during the recession, but the retail market has finally returned to pre-recession activity—and it is a good sign of the future.
“In the recession, Phoenix was one of the markets that was the hardest hit in the whole United States, along with Las Vegas, Florida and the Inland Empire,” Dave Cheatham, president of Velocity Retail Group, tells GlobeSt.com. “All of those markets bounced back faster than Phoenix. It lost more jobs and had more foreclosures than any one in the market. We were knocked so far back that it took us seven or eight years to get back to even on the jobs that we lost and it took us 10 years to get back to pre-recession levels of vacancy.”
The Southeast Valley leads the market with a 7.6% vacancy rate, down from a high of 14.6% in 2011. “For 35 years, the Southeast Valley has been one of the strongest in the Phoenix Metro,” says Cheatham. “It was also the hardest hit in the recession, and it took a lot more growth to bring it back to a normal level. The Southwest Valley is now starting to grow again.”
While the Southeast Valley is leading the market, the Central region continues to struggle. Of the six regions within Phoenix, the Central region is the only market with a double-digit vacancy rate at 10.1%. The submarket also has the largest stock of big box product and the largest number of big box vacancies. “Traditional shopping centers are not seeing the same level of recovery,” adds Cheatham. “The Central Valley is the only region in Phoenix that still has double-digit vacancy. The properties that were developed are in a pause period. They are older properties, and they will take a tremendous amount of work to regenerate them.”
In the last decade, the retail market has evolved tremendously alongside the explosion of ecommerce, and it makes sense that it took Phoenix’s retail market a decade to adapt, following the blow from the recession. However, Cheatham says that retail is constantly changing, and adaption is part of the industry. “In 10 years, the retail shopping center industry has changed, but the retail market is always changing. It is always evolving,” he says. “We have gone through the evolution with the Internet and it took an incremental piece of the business. Now, we understand that we need both bricks and mortar and ecommerce. Everyone is realizing that they have to have an Internet presence, and they have spent the last few years focusing on growing that aspect of their business. The market always finds a way to create value through efficiency.”
With a healthy outlook and little concern of another recession, Cheatham foresees more retail growth for Phoenix’s retail market. “I think this improvement will continue, as long as the economy continues to grow,” he explains. “In two years, you’ll have record unemployment that will beat anything on record. There is almost no speculative development, so all of the projects are coming out of the ground leased, so we will also see strong vacancy and absorption rates.”