Downtown is the only one of Phoenix’s nine submarkets to post a rise in the amount of retail space.
Retailers hoping to snare space in a market that has posted a 16.5% increase in consumer spending over the past two years will themselves have to spend considerably more on rents—if they can find space at all.
Phoenix’s retail vacancy rate hit a historic low of 4.8% at the end of June, according to a report released by the investment management firm Colliers. That’s a massive year-over-year decrease of 130 basis points and marks the 12th consecutive quarter of retail space decline in what has become the fifth largest metro in the United States.
The city’s population has increased by more than 100,000 people over the past five years to 1.8 million, placing it behind New York, Los Angeles, Chicago, and Houston.
Eight of the city’s nine geographic submarkets posted vacancy decreases year-over-year, with Downtown showing the only rise in available retail square footage. The lowest rate of 1.8% was posted in the West Valley.
New deals done for spaces 10,000 sq. ft. and up in Q2 rose by 17% over the first quarter and by 22% year-over-year. The largest lease was signed by Picklemall—the indoor pickleball center—for 104,000 sq. ft. at Arizona Mills Mall. Village Mentors, a behavioral science health group, assumed the second largest space of 31,550 sq. ft. at Alta Mesa Village in Mesa.
The space shortage promises to continue into the near future. Net absorption reached 1.9 million sq. ft. in the first half of the year, just 500,000 sq. ft. away from topping last year’s absorption level, according to Colliers.
New retail space in Phoenix, meanwhile, appears destined to develop slowly. Second quarter construction of 153,430 sq. ft. was less than what was produced in the first quarter and 39% lower than last year’s second quarter.
Phoenix retail rental rates averaged $16.12--3% higher than at the same time last year. The biggest quarterly increase of more than 6% was found in the West Valley, and North Scottsdale’s average rent of $23.30 per sq. ft. was 10% higher than it was in Q2 2022.
Food and beverage tenants appeared to be the most avid space-grabbers from the beginning of 2022 onward, according to Colliers. Quick-service restaurants led the pace with the opening of 118 new establishments in Phoenix during that period; 148 restaurants opened while just 74 shut down.