In the days of the Covid pandemic, the industrial and multifamily sectors were popping, while retail appeared to be in a doom spiral along with office space. Were we ever going to shop in public again? Had online commerce made bricks and mortar stores obsolete? As time passed, like the old Mark Twain saying, it became obvious that the tales of retail’s death had been greatly exaggerated. Today, with people clamoring for in-person goods, services, and restaurants like never before—investors are hot on the case. A look at the metrics tells the story:
- Vacancy has proven to be very healthy, hovering around the 5.2% range.
- One of the key statistics to consider in commercial real estate is the percentage of current inventory that is under development. Retail has just 1.18% of the current inventory under development—far less than multifamily or industrial. This is good for retail absorption and indicates that the Phoenix market will not suffer from high vacancy rates anytime soon.
- Year-over-year rent growth of 7.1% proves significant retail demand. Just as multifamily and industrial experienced record rent growth a few years ago, retail is having its moment. Phoenix is also outperforming the national average of retail rent growth, which is just over 2%.
Although there is not much retail development overall, the locations where it’s occurring are highly strategic. Two of the major players in the Greater Phoenix development landspace, DMB and Vestar, are in the process of developing Verrado Marketplace, a 500,000-square-foot, upscale location with major tenants such as Target, Harkins, Ross, and a variety of restaurants.
Medtail: The Retail Sector Standout
Ten years ago, the idea of getting a physical exam or MRI and picking up groceries without having to leave the parking lot would have sounded crazy. But the reality of the so-called medtail movement—medical in a retail location/center—has made it common. Traditionally, a hospital was an anchor location, and then all the doctors affiliated with it would have their medical offices within the same overall complex, along with offices focused on testing and medical imaging. At first, physicians may have felt like it was déclassé to set up a practice in a non-medical retail location, but ultimately, it was a business decision to get closer to the consumer base. The rise of medtail received a further boost during the pandemic, just at a time when retail vacancy rates were a major concern. In many cases, medtail also makes sense from an infrastructure perspective, an easy option for backfilling a former CVS, Walgreens, or even Bed Bath and Beyond with medical tenants who do not need to be in a hospital setting or cannot afford the time and expense of a ground-up, build-to-suit development.
Retail’s current success extends far beyond the traditional rotation of restaurants, services, and merchandise. Medtail concepts are often high performing with outstanding financials—whether a veterinary clinic or an urgent care in a strip center. Investors should be open to investigating their options and including them in potential acquisitions.
Originally shared via roiproperties.com newsletter. Click here to read full newsletter.