Retail has successfully evolved from the asset class that nobody wanted to touch in 2020–2022 to one of the hottest sectors in commercial real estate. In making that transition, it serves as a good example of how reactive the CRE market can be—often with more volatility in the marketplace than is merited.
Phoenix recently cracked CoStar’s top five in the country for retail rent growth and also came in at #9 in their ranking of U.S. retail markets. Interest is particularly heavy in segments such as multi-tenant retail centers, where investors can spread risk across multiple tenants, and triple-net deals, which are experiencing rising demand in Greater Phoenix and across the country.
“Another interesting twist is that investors are no longer solely focused on tier-one locations,” says R.O.I. Commercial Brokerage Associate Reuben Nach. “Value-add unanchored strip mall space has gained traction, with interest ranging from mom-and-pop investors and owners to larger entities such as Blackstone- and Nuveen-backed companies that are raising funds.”
Nach notes several strong tailwinds:
- Vacancy rate: Retail averaged 6.32% vacancy over the past 10 years but currently stands at 4.6%.
- Availability rate:
- Sales cap rates: Generally in the low-5% to low-6% range, depending on asset quality and location.
- Preleasing: Roughly one-third of new retail product is already preleased.
- Rental rates: Current average is $26.52/SF vs. a 10-year average of $21/SF.
Beyond the numbers, exciting new tenants are entering or expanding in Phoenix, including Micro Center, Vallarta Supermarkets, and Miniso. Developers such as Vestar, Macerich, Red Development, and others are actively building Class A retail. The West Valley in particular is seeing strong momentum with projects from Diversified Partners and SimonCRE.
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