Commercial Real Estate Retail Market Overview 2015 presented by Pat Darcy.
Retail Division Head
January 29, 2015
As we look forward to 2015, the Tucson Retail Market is steadily improving, similar in its performance to last year…two steps forward and one step back but with the promise of new retail development on the horizon.
The current retail vacancy rate is approximately 7.8 percent. Quoted retail lease asking rates are averaging $15.60 per square foot NNN. According to CoStar, there was approximately 410,000 square feet of positive net absorption for the year ending 2014.
In my opinion, there are five reasons for optimism within the Tucson retail market: (1) the small amount of new retail construction over the past few years; (2) the redevelopment of central area properties such as Wilmot Plaza which recently had their groundbreaking with Dick’s Sporting Goods as their anchor tenant and the redevelopment of the former Marie Callender’s property just south of the SEC of Broadway and Wilmot Rd (3) Long vacant central area parcels have and are being developed, such as Evergreen’s development at the SEC of 22nd/Alvernon and Chapman’s Motors expansion on 22nd St east of Columbus Blvd; (4) New retail tenants entering the market and assembling retail spaces, such as Natural Grocers and Longhorn Steakhouse. and (5) the continued expansion ofUrgent Care facilities and dental chains.
Repurposing Older Properties
This redevelopment of older properties in central Tucson has been a good thing. There is too much obsolete retail space in Tucson’s central core and assemblages have and will continue to take these older, smaller retail spaces off the market and replaced them with newer product and stronger retail tenants. Larsen Baker is revitalizing part of their Circle Plaza Shopping Center at Broadway & Kolb by adding Natural Grocers and building new shop space of the east end of the shopping center where Play It Again Sports is now. Look for more of this type of development throughout the Tucson area.
There is a 99,000 square-foot Wal-Mart now open at Houghton Town Center and other pad-type users like Panda Express and Discount Tire are now operating. On the northwest side at I-10 and Twin Peaks, the 360,000 square foot Tucson Premium Outlets is now under construction and will open in October with other retail development there being phased in. Anchor tenants are still very cautious before moving forward on sites in the outlying areas of Tucson. The words you will hear the most often are “phasing in”, as developers want both anchor tenants and shop space mostly leased before construction begins. Before the recession, in order to get the best corners in suburban growth areas, supermarket developers would agree to deals by looking at home builders’ new home projections. When homebuilding suddenly stopped, they were stuck. Anchor tenants and savvy developers now want to see actual rooftops before moving forward on a site.
The Restaurant Scene
Expect several new restaurants to open in Tucson. The Longhorn Steak House on E. Broadway opened last year. Expect them to open a second restaurant near Tucson Mall. Cheddar’s recently had a successful opening of its first Tucson location at El Con Mall. The fast bake pizzerias have rolled into town, Pionic Pizza, Blaze and Pielogy and will open multiple sites throughout the Tucson area. Others who will open new restaurants include Kneaders, Raising Cane, Costa Vita Grill and Blakes Lotaburger. We also gained our own first run cinema serving cocktails and dinner when Roadhouse Cinema opened at Grant and Swan in the Crossroads Festival Shopping Center.
I also want to spend some time talking about downtown retail activity. Downtown’s retail market has nearly 500,000 square feet of storefront space with a 6.00% vacancy rate. In the past five years, over 200 new businesses have opened in the downtown area. They include over 60 restaurants, 53 retail stores, 2 mini grocers and 18 nightclub destinations, with almost all of them locally or statewide owned. The two markets, Johnny Gibson’s Downtown Market opening in March and Proper Meatery will be interesting to follow. Hi-Fi Kitchen & Cocktails has already made a huge impact to the area attracting hundreds Thursday through Sunday. An 8-story hotel called AC by Marriott with 147 rooms with first-floor retail and a parking structure is expected to break ground this summer and open in the Spring of 2016.
Last January I predicted that El Con would sell this year. It sold in May for $81.7 million dollars. It was a good deal for both sides. El Con is way over parked so I look for some type of mixed-use development to be built on the north side of the property.
Look for more nontraditional shopping center tenants such as health clubs, charter schools, pawn shops, thrift stores, churches and medical & dental care facilities to lease space in retail centers.
High-visibility retail pads and end-cap shop space will command retail rates in the $30.00 per-square-foot range in and near high profile shopping centers.
With the Safeway’s merger with Albertson’s (Cerberus), expect that chain to become more aggressive in Pima County. Haggen Food & Pharmacy with headquarters in Washington will open three stores in the Tucson area..
Look for the Bridges at Kino/I-10 to add a multi screen theater to fit between Costco and Wal-Mart who are both experiencing sales above projections.
A 25,000 square foot Nordstrom Corner Store will be the co-anchor tenant with Dick’s Sporting Good at Wilmot Plaza.
Watch as Wal-Mart Neighborhood opens a store at Tucson Blvd and Drexel. I predict Marana Main Street located at I-10 & Marana Road, will begin phasing in of its 28 acre mixed use development.
Look for more independent gas stations continue to close or be assembled by large retail groups
Familiar restaurants will continue to close. As every new restaurant opens, it takes customers from other nearby restaurants.
Mom and Pop tenants will continue to fight the battle with the chain stores and road-widening projects
Look for more office supply stores to close or merge.. Their space will be quickly taken by other retailers like Summit Hut.
As I mentioned earlier, the road-widening projects on Grant Road from Stone to Swan Road and the East Broadway widening from Euclid to Country Club, will continue to create more vacancy due to the uncertainty of the timing of the road work and the timeframe of the City’s ability to acquire properties. It’s called condemnation blight and it is real.
Overall the Retail market in Tucson is slowlyimproving and the vacant large retail spaces are being leased which should spur new construction. The Retail market has started toturn and better things will be in store in 2015.