Tucson Retail Market Overview 2016

Tucson Retail Market Overview 2016

RETAIL MARKET OVERVIEW

Pat Darcy

Retail Division Head

Pat Darcy Retail Division Head commercial real estateJanuary 28, 2016

As we look forward to 2016, the Tucson Retail Market is steadily improving, similar in its performance to last year… three steps forward and one step back with the promise of new retail developments in 2016.

In Tucson, urban infill is where the action is. New retail developments are being built where old obsolete retail properties used to be. This year you are going to see much more of this redevelopment in the city’s central core.

The current retail vacancy rate according to the Pima County Research Council is approximately 8.3 percent and CoStar has it as 6.6 percent. Quoted retail lease asking rates are averaging $15.90 per square foot NNN.   One of the largest sales transactions from 2015 was the sale of Northgate Plaza, located at the northeast corner of Grant/Alvernon, which sold for $12,800,000.00 or $123.68 per square foot at a 6.35% cap rate. The Purchaser was Stromiga Development which is located in Saratoga, CA.  Wal-Mart Neighborhood Market is the anchor tenant.  The largest lease signings included Nordstrom Rack for 25,000 square feet, PGA Tour Superstore for 25,000 square feet and The Container Store for  40,000 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 has increased due to the economic viability for the demolition and redevelopment of obsolete central city properties.  Examples of this Urban Infill trend include Wilmot Plaza where Dick’s Sporting Goods opened late last year and a 25,000 square-foot Nordstrom Rack is expected to open in May. The landlord will also build out 35,000 square feet of shop space. A Popeye’s Chicken will open next to Longhorn Steakhouse on East Broadway on a site where old obsolete retail buildings used to stand. The former Wildcat House was recently redeveloped into a Brother John’s Beer Bourbon and BBQ.   At 1st 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 was recently purchased by Larsen Baker.  Expect a redevelopment to occur there. Summit Hut recently relocated into a former Office Depot on East Speedway.  Chick-fil-a is under construction at the northwest corner of Grant/Tanque Verde where a fuel station was once located.

Another good sign is that once vacant central area land is now being taken off the market with developments such as DES at Evergreen’s property and the Geico office buildings behind Walgreen’s at the southeast corner of 22nd Street & Alvernon Way.  Also is Chapman’s Motors 76,894 square foot expansion of their Honda Dealership on 22nd Street east of Columbus Blvd.  New retail tenants that recently entered the market are starting to add more stores.  Examples include Tractor Supply (4 stores) Natural Grocers with more stores planned at Broadway Village and River/Craycroft. Longhorn Steakhouse recently opened a new restaurant at Oracle & Wetmore where an Arby’s used to be. We can also expect continued expansion of Urgent 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. We need more of this type of re-development throughout the Tucson area.

New Developments

A Wal-Mart Neighborhood Market anchored retail center recently opened 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.

A 14-screen Cinemark movie theater will open at Tucson Marketplace (The Bridges) in the summer of 2016. Joining the theater will be a 30,000 square foot Dave & Buster’s. This will be their first Tucson store.

Fry’s has announced a new super store in Midvale Park 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 is now open. Expect an auto mall to be in the second phase along with a possible hotel.

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.  A good example of this new trend is the Wal-Mart anchored 60-acre Houghton Town Center. The developer is currently in Phase 1 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.  Sauce and Prep & Pastry are currently under construction on East Grant Road east of Zinburger. Scordatos 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.  The fast-baked pizza restaurants will continue to look for new sites.

Downtown Action

I also want to spend some time talking about downtown retail activity where 13,000 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 240 new businesses have opened in the downtown area.  They include over 66 restaurants, 56 retail stores, one grocery store and 18 nightclub destinations, with almost all of them locally or statewide owned.  Retailers who have recently opened include Sonoran Wings & Seafood, Rivals Shoes, Charro Steak, Batch Donuts & Whiskey, Café Luce. The 8-story hotel boutique hotel called AC by Marriott with 137 rooms with first-floor retail and a parking structure is under construction and is expected to open in May of 2017.  New residential projects planned in downtown will also create more retail opportunities.

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 and Sprouts to be aggressive in the Tucson area.

Two restaurants 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.

The three former Haggen Food & Pharmacy will be purchased by other grocery stores or big box tenants.

A power center will be built in 2017 at the southeast corner of I-19 & Irvington. Sam’s Club is a possible anchor tenant.

Retail centers are also planned for northeast corner of 22nd Street/Houghton and the northwest corner of Golf Links/Houghton.

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.  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 still has no set plan.  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 things are ahead.

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