Retail Market Overview Presented by Pat Darcy

Retail Market Overview Presented by Pat Darcy

Retail Market Overview

Pat Darcy

Retail Division Head

As we reach the midyear point in 2014, the Tucson Retail Market is steadily improving, similar in its performance to last year…two steps forward and one step back, which is a very familiar phrase when describing Tucson’s Retail market.

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 the Pima County Real Estate Research Council, there was approximately 240,000 square feet of positive net absorption for the first quarter. This includes the 99,000 square-foot Wal-Mart at Houghton Center, the 40,000 square-foot Conn’s and the 20,000 square-foot Guitar Center at Marana Marketplace.

In my opinion, there are four reasons for the increased absorption of retail shop space:  (1) the small amount of new retail construction the past few years; (2) the redevelopment of central area properties by retailers such as Wal-Mart Neighborhood Markets, Walgreens, CVS, Quick Trip and Circle K; (3) the leasing of most of our vacant big boxes to tenants such as Stein Mart, Hobby Lobby, Chuze Fitness, Floor & Décor at Broadway & Kolb, and Conn’s Home Plus; and (4) the emergence of Urgent Care facilities and dental chains entering the marketplace.

The redevelopment of properties in central Tucson has been a good thing.  There is too much outdated retail space in Tucson’s central core and assemblages have taken these older, smaller retail spaces off the market and replaced them with newer product and stronger retail tenants.   A good example of this was the assembling and demolishing of approximately 23,000 square feet of obsolete retail space built in the 1960’s on Broadway just west of Park Place for a Longhorn Steakhouse. We can also include the current demolition of most of Wilmot Plaza at the Northeast corner of Broadway and Wilmot with the remaining spaces expecting to undergo a complete remodel. We can’t forget to mention the 40,000 square feet of obsolete shop space that was taken down last year at the old Mercado Shopping Center to make way for a CVS. Look for more assembling of older properties in central Tucson.

Already this year a 99,000 square-foot Wal-Mart has opened at Houghton Town Center with other pad-type users like Panda Express now operating and Discount Tire opening soon.  On the northwest side at Marana Marketplace, a Larsen Baker development, Conn’s Home Plus (40,000 sq. ft.) recently took possession of their space for their tenant improvement work and Guitar Center (20,000 sq. ft.) opened in early June with a crowd of over 400 people, including George Larsen, one of the landlords, wearing his Beatle wig waiting to get inside.

After the recession, anchor tenants are still very cautious before moving forward on sites in the outlying areas of Tucson. 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 the homebuilding suddenly stopped, they were stuck.  Now anchor tenants want to see actual rooftops before making a decision

Expect several new restaurants to open in Tucson.  In May, Longhorn Steak House opened its first restaurant in Tucson just west of Park Place. Cheddar’s is currently under construction at El Con.  Also expect to see pizzerias roll into town.  Pionic Pizza will soon open its first restaurant on N. Campbell just south of Campbell Plaza, Pizzeria Bianco will be opening downtown, and Pieology Pizza and Blaze will also be coming to Tucson.  Others who have recently arrived in Tucson, like Smashburger, Freddy’s Steakburger, Chick-fil-A and Culvers, will continue to expand.  LaReforma will replace Vivace at St. Phillip’s Plaza.

I also want to spend some time talking about downtown retail activity.  In the past five years, over 160 businesses have opened in the downtown area.  They include over 60 restaurants, 53 retail stores, 2 markets and 18 nightclub destinations, with almost all of them locally or statewide owned.  The two markets, Johnny Gibson’s Downtown Market 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 in January and open in the Spring of 2016.

MY PREDICTIONS

Before I start, I would like to mention that in 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.

A 60-plus acre mixed-use development including a premium outlet center will start construction at I-10 and Twin Peaks late in 2014.

Safeway will merge with Albertson’s  (Cerberus) and become active throughout Arizona.

Look for the Bridges at Kino/I-10 to add another large anchor tenant to fit between Costco and Wal-Mart who are both experiencing sales above projections.

Watch as Wal-Mart and Fry’s continue to be active in the Tucson area and open between three to five stores in 2015.  Sites could be at Valencia & Mark Rd., I-10 & Marana Road, I-10 & Valencia, Houghton & Golf Links, and Colossal Cave &  Mary Cleveland Way.

Look for more independent gas stations to close.

A new grocery store to compete with Trader Joe’s will enter the Tucson market.

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

With the merger of Office Depot and Office Max, I expect four of their nine stores in Tucson to close this year.

As I mentioned earlier, the road-widening projects, such as Grant Road from Stone to Swan Road and the uncertainty of the E. 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.

The Retail market in Tucson is slowly improving and large and medium retail spaces are becoming fewer and fewer.  The Retail market has started to turn and good things will be in store in 2015.

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