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Year End Retail Market Overview

Posted on Feb | 2017

Pat Darcy Retail Division Head commercial real estateRETAIL MARKET OVERVIEW

Pat Darcy

Retail Division Head

As we start the first quarter of 2017, the Tucson Retail Market is continuing to maintain its momentum that started two years ago.  In regards to new retail developments, 2017 should be fairly similar to 2016. The difference will be that more new retail developments will be announced in the coming months.

In Tucson, urban infill is still where most of 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/or assembling of older retail properties. Most of these older retail properties that were built in the 1960’s – 1970’s are obsolete and need to be replaced. This trend will continue in the central areas of Tucson as we still have an overabundance of these obsolete properties.

The current retail vacancy rate according to CoStar is approximately 6.4 percent.  Quoted retail lease asking rates are averaging $15.25 per square foot NNN.  The largest sales transaction from 2016 was the Bourn Companies, LLC, sale of the 139,000 square-foot Wilmot Plaza Shopping Center located at the northeast corner of Broadway/Wilmot Rd, which sold for $47,300,000 or $340.29 per square foot.  The Purchaser was DSW Wilmot Plaza, LP, a local group.  Bourn Companies had purchased the shopping center in 2013 for $6,200,000. The largest lease signing was Safeway leasing the former Haggen Grocery Store at the southeast corner of Broadway/Houghton Roads. The property is approximately 60,000 square feet.

In my opinion, there is now more optimism within the Tucson Retail Market with new companies entering the Tucson area and existing stores looking to increase their retail presence in Tucson.

There is a strong demand for redeveloped retail space in central Tucson.  Examples of this urban infill trend include the intersection of Broadway and Wilmot Roads.  The majority of Wilmot Plaza located at Broadway/Wilmot was scrapped.  Dick’s Sporting Goods opened in 2015 and last spring a 25,000 square-foot Nordstrom Rack opened.  Bourn has also built out 25,000 square feet of shop space with an additional 10,000 square feet of shop space on the hard corner.  All of the approximately 35,000 square feet has been leased, an outstanding job by Bourn Companies.  Just a few years ago a dated El Mercado retail center was scrapped and a CVS and three new restaurants added.  To the south of that development a vacant Marie Calendars was also scrapped and a new restaurant, Corner Bakery Café has opened. To the south of Corner Bakery 10,500 square feet of retail shop space was built.

A Hooters Restaurant recently opened at Circle Plaza, a Larsen Baker development, on a pad site where Play It Again Sports used to be.  A new Bealls Outlet will soon be opening where Sports Authority used to be. Look for some older retail spaces across the street from Longhorn Steakhouse on East Broadway to be assembled, scrapped and replaced by new retail space.  At Craycroft & Broadway the former church east of Hobby Lobby was also scraped and now there are three new restaurants on site with El Pollo Loco, Krispy Kreme  now open  and Blaze Pizza opening soon. The former 32,000 square-foot Copper Country at the northwest corner of Broadway/Rosemont that was purchased by Larsen Baker and will be repurposed.  On Grant Rd. just east of Wilmot Rd., Sauce and Prep & Pastry are now open.

New retail tenants that recently entered the market are starting to add more stores.  Examples include Hobby Lobby (2 stores), Natural Grocers (now with 4 stores open) and Bealls (3 stores). We can also expect continued expansion of Medical Care facilities, dental chains, mattress stores and pawn shops.

Repurposing Older Properties

This redevelopment and demolition 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 previously mentioned Circle Plaza shopping center at Broadway/Kolb by adding Natural Grocers and a Hooters restaurant.  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 42,000 square-foot Walmart Neighborhood Market is currently under construction at Amphi Plaza located at the northeast corner of Ft Lowell and 1st Ave and is expected to open in mid-summer if not sooner.  Approximately 60,000 square feet of old retail space was replaced for this new market.

The former Grant Road Lumber company was bladed and is being replaced by The Yard, an approximately 20,000 square-foot restaurant currently under construction and being developed by the Sam Fox’s Restaurant Group.  Their opening is expected to be in September.   In addition, the corner car wash was also purchased by Fox and another restaurant will be added there as well.

The Bridges, at I-10 & Kino keeps adding new tenants. A 14-screen, 57,000 square-foot Cinemark movie theater opened late last year. An approximately 25,000 square-foot Planet Fitness recently opened and a 30,000 square-foot Dave & Busters is currently under construction.

A 100,000 square-foot Fry’s super store opened late last year on Valencia Road in Midvale Park. Starbucks is on the hard corner and 10,000 square feet of shop space is almost all leased up.  This was the first new Fry’s store to open in Tucson in over 10 years!

On the northwest side at I-10 & Twin Peaks Road, the 360,000 square-foot Tucson Premium Outlets developed by Simon Development is on a roll with sales above projections and better than their Chandler outlet mall.  A Hampton Inn will be opening later this year. Expect an auto mall to be developed at that intersection in the next year.

Anchor tenants are still being very cautious on opening new stores 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 pre-leasing 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 Walmart anchored 60-acre Houghton Town Center in Vail. The developer, Diamond Ventures, started out with a freestanding Walmart super store. Stage 2 is pre-leasing shop space and selling free standing pad sites. Now they are currently in Stage 3 where TJ Maxx, Ross and Petco are now under construction with a planned opening in the fall.

The Restaurant Scene

Expect several new restaurants to open and others to expand in Tucson.  Black Bear Diner is currently remodeling the former 5,500 square-foot Coco’s on E. Broadway across from Park Place and will also open in the Irvington/I-19 trade area.  Abuela’s Cocina Mexicana leased the former Old Pueblo Grille on N. Alvernon and should open later this month.  Look for Cheddar’s, Raising Cane and Kneader’s to add new sites. Other new restaurants include, Blake’s Lotaburger, Corner Bakery Café, McAllisters Deli, Checkers, Bisbee Breakfast Club, Lin’s Grant Buffett and Rally’s.  The fast-baked pizza restaurants did not generate the synergy we thought they would, as they failed to account for the loyal customers who prefer Papa John’s, Domino’s, Pizza Hut, Little Caesar’s and Blackjack Pizza.

Downtown Action

I also want to spend some time talking about downtown retail activity, where approximately 14,400 people now live within a mile of downtown.  The Downtown Retail Market has nearly 500,000 square feet of storefront space with a vacancy rate now around 6 percent.  In the past five years, over 250 new businesses have opened in the downtown area.  New businesses include Caterpillar, Tucson Roadrunner, MiAn Sushi & Asian Bistro, Even Steven’s, Owl’s Club and AZ Daily Star “This is Tucson.”  The 8-story hotel boutique hotel called AC by Marriott with 137 rooms, 6,000 square feet of ground level retail and a two hundred space parking garage will  open in May. New residential projects planned in downtown including La Placita Village at One S. Church will also create more retail opportunities.  For 2017-2018, over 450 new homes/apartments are proposed.

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 take the place of traditional tenants.

High-visibility retail pads and end-cap shop space will command retail rates in the $30.00/$40.00 per-square-foot range in and near high-profile shopping centers.

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

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

A 78,848 square-foot Fry’s anchored neighborhood shopping center at the southeast corner of Oracle Rd./Saddlebrooke Blvd. will open in the first quarter of 2018.

Look for an over 100,000 square-foot big box retailer to announce that they will be opening at The Bridges.

Later this year, Fry’s should be able to start construction of a new super store at Houghton & 22nd St.

A 58-acre power center developed by Bourn Partners at the southeast corner of I-19 &Irvington Road is under construction. .A 50,000 square-foot Hobby Lobby will be one of the anchor tenants. The site will have at least 17 pad sites.

Keep an eye on Sears, Macy’s and K-Mart.  These traditional retailers did not make adjustments to keep up with the changing times and now are just trying to survive.

In 2018 a new retail development will open in Sahuarita across from the Walmart, at S. Nogales Hwy. & I-19.  A 30,000 square-foot Sprouts will be the anchor tenant.

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

Look for independent gas stations to continue to close and be redeveloped into single-tenant retail sites. Sadly, 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. These property owners are in a difficult position. They don’t want to make tenant improvements, as the City may want to blade their property and it’s hard to sell as they don’t really know how much land the City will “take”.  The East Broadway widening project from Euclid to Country Club was approved by the voters in 2006. It’s now 2017 so imagine owning a retail property in that area and wanting to sell it or remodel it?  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.

One issue we need to watch closely is our relationship with Mexico. Mexican shoppers spend over $1 billion dollars a year in Pima County.  A drop off in trade would have a major impact on our economy. The devaluation of the peso is already having an effect on cross border shopping

Overall, the Retail Market in the Tucson area is improving.  Look for more retail activity in Marana, Vail, Sahuarita and Oro Valley, areas where home building will be very active. The increased population should spur new retail construction.  The Retail Market continues to improve and better times are ahead.

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