WESTERN SNAPSHOT, NOVEMBER 2004

Tucson, Arizona Retail Market

Villaescusa

The Tucson retail market is trending toward more specialty grocery store development, according to Pete Villaescusa, first vice president of CB Richard Ellis Tucson. Currently, specialty grocery stores, such as Bashas’, an Arizona-based grocery chain, are thriving. The chain has opened three types of stores recently, including one upscale store, AJ’s Fine Foods; one middle-line store, Bashas’; and several Food City stores, which is a Hispanic market concept. Sunflower Market has opened a store in Tucson and will be opening a second location before year’s end.

With plans to operate five to six of its grocery-based stores in Tucson before year-end 2005, Wal-Mart is having a big effect on the market. “Traditional grocery stores, Safeway, Fry’s (Kroger), and Albertsons, have all slowed down or completely stopped growth in the last 2 years, which is due in some part to concerns over Wal-Mart’s entry into the grocery market,” says Villaescusa. Wal-Mart has completed its first lease for a grocery store in Tucson, which is scheduled to open by year’s end. Wal-Mart currently operates three super centers, two regular Wal-Mart stores and one Sam’s Club in the trade area.

Other big box activity includes Target, which has opened two new stores within the past year, including one Greatland concept store, and Lowe’s Home Improvement Warehouse, currently operates three stores, two of which were former 215,000-square-foot Super Kmarts. The Home Depot is responding to Lowe’s challenge with relocations of two older stores in Tucson.

Macerich/Westcor recently completed La Encantada Center, located in the Foothills area of Tucson. The 258,000-square-foot open-air lifestyle center development includes tenants such as AJ’s Fine Foods, Pottery Barn and Crate & Barrel. On the north side, Oracle Crossing is under development and will feature a Sprouts grocery store. Also, the redevelopment of Tucson’s first shopping mall, El Con Mall, continues with the addition of a new Target and Tucson’s first Claim Jumper Restaurant.

The majority of development is occurring in the northwest, southwest and southeast corridors. “There are large quantities of land available with minimal environmental restrictions [to the southeast],” says Villaescusa. Also, Marana to the northwest will continue to grow as former cotton farms are converted to residential developments over the next decade.

Several retailers are new to the Tucson market. Both Kohl’s and 99 Cents Only have opened two new stores in Tucson. HomeGoods and The Sports Authority have recently leased spaces of approximately 29,000 and 40,000 square feet, respectively, at Broadway and Kolb.

The Tucson retail vacancy rate fell from 10.99 percent at the end of last year to 10.55 percent mid-year 2004. Average asking lease rates remained steady in the first half of the year at $13.51 per square foot. On the investment side, Tucson retail is red hot, says Villaescusa. “Investors from California are anxious to purchase properties with cap rates one half to a full point higher than in California markets,” he adds. “There seems to be virtually no seller in our market who can’t find a buyer.”

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