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Midyear Retail Market Overview

Posted on Jun | 2016

Pat Darcy Retail Division Head commercial real estateby Pat Darcy

Midyear Retail Market Overview

Urban Infill – Where the Action is

As we reach the mid-year point of 2016, the Tucson Retail Market is continuing to maintain its momentum that started last year.  We can expect new retail developments to be announced in the coming months.

In Tucson, urban infill is still where the action is. New retail developments are being built where old obsolete retail properties used to be. As you drive in the areas of Tucson where road-widening projects are ongoing, you will see this repurposing and assembling of older retain properties.  This trend will continue as the central area of Tucson has an overabundance of these older properties.

The current retail vacancy rate according to CoStar is approximately 6.9 percent.  Quoted retain lease asking rates are averaging $15.50 per square foot NNN.  The largest sales transaction from the first half of 2016 was the sale of Shoppes at Rita Ranch located at the northwest corner of Houghton/Rita Roads, which sold for $12,750,000.00 or $390.00 per square foot at a 6.16 percent cap rate.  The Purchaser was GTT The Shops at Rita LLC.  The largest lease signing was Galaxy Theater leasing the former Basha’s store at the northwest corner of Broadway/Houghton Roads.  The property is approximately 51,000 square feet.

In my opinion, there is some optimism within the Tucson Retail Market such as:  The demand for new retail space in central Tucson.  This has increased due to the economic viability for the demolition and redevelopment of obsolete central city properties in established residential areas.  Examples of this Urban Infill trend include the intersection of Broadway and Wilmot Roads.  The majority of Wilmot Plaza located on the northeast corner of Broadway/Wilmot was scrapped.  The center now has a Dick’s Sporting Goods which opened late last year and this spring a 25,000 square-foot Nordstrom Rack opened.  The landlord will also build out 25,000 square feet of shop space with an additional 10,000 square feet on the hard corner.  The hard corner development is expected to be under construction later this year.  Of the approximately 35,000 square feet, only 10,000 square feet is available.  A few years ago, an old retail center (El Mercado) located on the northwest corner of Broadway/Wilmot with high vacancy rates was scraped and a new CVS was built.  A few years later, two restaurants, Kneaders and Raising Cane, have opened.  To the south of that intersection, a former Marie Calendars was scrapped and Corner Bakery Café, a restaurant new to Tucson will open in the next few weeks.  Also, 10,500 square feet of new retail shop space was built to the south of Corner Bakery.

A Popeye’s Chicken is expected to open next to Longhorn Steakhouse on East Broadway on a site where old obsolete retain buildings used to stand.  Across the street three 1960-era retail buildings will be scrapped and replaced by an approximately 3,500 square-foot retail building.  The former church site east of Hobby Lobby now has three new restaurants on site with El Pollo Loco and Krispy Kreme now open and Blaze Pizza to open in the summer.  At First Avenue and Wetmore, the former Golden Corral will be replaced with new retail buildings.  The former 32,000 square-foot Copper Country at the northwest corner of Broadway/Rosemont that was recently purchased by Larsen Baker will be renovated.  What once was a fuel station located on the northeast corner of Grant/Tanque Verde is now a Chick-Fil-A.  Just west on East Grant next to Zinburger, Sauce is now open and Prep & Pastry will open soon.

New retain tenants that recently entered the market are starting to add more stores.  Examples include Tractor Supply (4 stores), Natural Grocers recently opened at Broadway Village and a new store at River/Craycroft is under construction.  Longhorn Steakhouse recently opened a new restaurant at Oracle & Wetmore where an Arby’s used to be.  We can also expect continued expansion of Medical Care facilities, dental chains, mattress stores and pawn shops.

Repurposing Older Properties

This redevelopment and/or scrapping of older retail properties in central Tucson has been a good thing.  There is too much obsolete retail space in Tucson’s central core. Property assemblages have and will continue to take these older, smaller retail spaces off the market and replace them with newer product and stronger retail tenants.   Larsen Baker revitalized their Circle Plaza shopping center at Broadway/Kolb by adding Natural Grocers and are currently building a Hooters restaurant on the east end of Circle Plaza where Play It Again Sports used to be located. It is expected to open in late August.  We need more of this type of redevelopment throughout the Tucson area as it strengthens the Retail Market while helping give Tucson a much needed facelift of its urban core.

New Developments

A Wal-Mart Neighborhood Market recently opened earlier this year at the southeast corner of Drexel and Tucson Boulevard.

Later this year, a Wal-Mart Neighborhood Market will open and revitalize Amphi Plaza located on the northeast corner of Ft Lowell/1St Avenue.  Approximately 60,000 square feet of old retail space will be replaced for a 42,000 square-foot Wal-Mart Neighborhood Market.

In November, a 14-screen 57,000 square-foot Cinemark movie theater will open at Tucson Marketplace (The Bridges at I-10 & Kino).  Joining the theater in 2017 include a 30,000 square- foot Dave & Buster’s and a 25,000 square-foot Planet Fitness.  Now, there are only 20 acres of developable land between Costco and Wal-Mart.

A new Fry’s super store in Midvale Park is under construction at the southwest corner of Valencia & Indian Agency Road. Opening is planned for late 2016.  This will be the first new Fry’s store to open in Tucson in over 10 years.

On the northwest side at I-10 & Twin Peaks Rd, the 360,000 square-foot Tucson Premium Outlets developed by Simon Development is now open with sales above projections and better than their Chandler outlet mall. Expect a hotel in phase two and then an auto mall.

Anchor tenants are still being very cautious on sites in the outlying areas of Tucson. The words you will hear most often are “phasing in”, as developers and their bankers both want their anchor  tenants signed up and under construction before they start preleasing their shop space. Anchor tenants and savvy developers want to see actual rooftops and not rooftop projections before moving forward to develop suburban sites as was the case pre-recession.  A good example of this new trend is the Wal-Mart anchored 60-acre Houghton Town Center. The developer is currently in Phase 2 which is about 30 acres. Shop space was only built out when tenant leases were signed.

The Restaurant Scene

Expect several new restaurants to open and others to expand in Tucson.  As previously mentioned, The Longhorn Steakhouse opened their second restaurant at Oracle/Wetmore.  Look for Cheddar’s after a successful opening at El Con Mall and Raising Cane and Kneader’s to add new sites.  Scordato’s Pizzeria is going into the former Mr. K’s at River Rd./Stone Ave.  Other new restaurants include, Blake’s Lotaburger, Corner Bakery Cafe and McAllisters Deli and Checkers & Rally’s.  The fast-baked pizza restaurants will continue to look for new sites.

Downtown Action

I also want to continue  to spend some time talking about downtown retail activity where 14,000 people live within a mile of downtown.  The Downtown Retail Market has nearly 500,000 square feet of storefront space with a vacancy rate now under 6 percent.  In the past five years, over 250 new businesses have opened in the downtown area.  Since the beginning of 2016, six retailers have opened.  They are:  Batch Café Whiskey & Donuts, Carriage House, Charro Steaks, Elvira’s, The Screamery and Senae Thal Bistro with almost all of them locally or statewide owned.  The 8-story hotel boutique hotel called AC by Marriott with 137 rooms, 6,000 square feet of ground level retail and a two-space parking garage is estimated to open in May of 2017.  New residential projects planned in downtown will also create more retail opportunities.  This year, 125 new homes are currently under construction.

MY PREDICTIONS

Look for more nontraditional shopping center tenants such as health clubs, charter schools, pawn shops, thrift stores, and medical & dental care facilities to open new stores.

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.

Look for Fry’s, Wal-Mart, Safeway and Sprouts to be aggressive in the Tucson area.

Another restaurant in addition to Sam Fox’s Yard will open at the northeast corner of Grant/Tucson Boulevard where Grant Road Lumber used to be.

A new retail center will be built on the northwest corner of Broadway/Rosemont.

A new restaurant will open at the former Old Pueblo Grill location

A new neighborhood shopping center at the southeast corner of Oracle Rd./Saddlebrooke Blvd. will be announced. Fry’s will be the anchor tenant.

A power center will be built in 2018 at the southeast corner of I-19 & Irvington. Sam’s Club is a possible anchor tenant.

Look for new restaurants to open in Tucson which could include Habit Burger, Black Bear Diner and Rudy’s BBQ.

Marana Main Street located at I-10 & Marana Road will continue phasing in projects in its 28 acre mixed-use development.

Look for independent gas stations to continue to close and be redeveloped into single-tenant retail sites.  Think mattress companies.  Sadly, some familiar restaurants will continue to close.  Last year, 31 restaurants closed their doors.  This year, 10 have closed so far.  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, Amazon and road-widening projects.  Look for more local tenants to close due to the competition of national chain stores.

The slow going road-widening project on Grant Road from Stone to Swan Road has been hard on tenants and property owners. The East Broadway widening project from Euclid to Country Club approved by the voters in 2006 finally has a plan, but not finalized.  These projects 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.

Overall, the Retail Market in Tucson is improving and with the vacant big box spaces dwindling, this should spur new retail construction.  The Retail Market continues to improve and better times are ahead.