WESTERN SNAPSHOT, OCTOBER 2004

Phoenix Retail Market

Like its freeway system, Phoenix’s retail sector continues to grow to keep pace with an ever-increasing population. “We are seeing a lot of new power, lifestyle and entertainment center developments as developers try to place regional shopping centers closer to the fast-growing suburbs,” says Matt Milinovich, senior associate for retail services at Trammell Crow Company’s Phoenix office.

Some significant Phoenix-area developments that embody this trend are Vestar Development’s 1.3 million-square-foot Tempe Marketplace, Kimco Developers/DeRito Partners mixed-use/power center development, and Concord Eastridge’s Arts and Business Gateway District development for Arizona State University (ASU). “It is expected that the Tempe Marketplace and Kimco/DeRito projects will lure the ASU student shoppers away from the unique retail shops along Mill Avenue and will further hurt this struggling retail area,” says Milinovich.

The new freeway corridors in the East and West Valley are where the majority of retail development is taking place. True to form, retail is following the residential expansion in these areas. According to CB Richard Ellis’ mid-year report, Phoenix’s retail vacancy rate decreased for the fourth consecutive quarter to 7.02 percent. Net absorption in the second quarter exceeded 1.2 million square feet.

Westcor/Macerich, Barclay Group and Diversified Partners are also active in the market with multiple power center projects planned throughout the valley in the next few years, says Milinovich. He adds that newly formed Frontera Development has numerous neighborhood retail projects planned in the market, including several Wal-Mart Neighborhood Market centers.

Wal-Mart’s continued expansion in the Phoenix area is sure to impact the existing grocery business as well as the expansion of natural grocery chains like Henry’s Marketplace/Wild Oats Natural Marketplace, Sprouts Farmers Market, Whole Foods Market and Sunflower Market. In November, Ikea will be opening its first location in the Phoenix-area market, an approximately 342,000-square-foot furniture store. “The city expects $1 million annually in sales tax revenue from this giant furniture store,” says Milinovich. Cinemark Theatres will be adding at least one theater to the East Valley submarket. Also, the Phoenix area has welcomed numerous fast-food and quick-serve restaurant concepts, including Pizza Patron, Taco Del Mar and Chick Fil-A.

HomeGoods, a home décor retailer, will join the tenant lineup at Las Tiendas Village, a new center to be developed by Vestar in Chandler, Arizona, in early 2005. Henry’s Marketplace (30,000 square feet) and Steinmart (34,000 square feet) have also signed leases there recently.

While retail activity in Tempe and Chandler has kept the southeast submarket hot, Milinovich looks to the West. “The western portion of the market is growing rapidly with a tremendous amount of affordable new housing coming online in the next few years,” he says. “There will be a lot of retail development following the rooftops. The towns to keep an eye on are Avondale, Goodyear, Laveen, Buckeye, Glendale, Peoria and Surprise.”

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