Phoenix retail leasing volume accelerates to decade high

Article originally posted on CoStar on December 17, 2024

Leasing volume is ramping up in the Phoenix retail market as sustained demand and an uptick in for-lease inventory encourage deals.

The second and third quarters of 2024 each recorded an average of about 2.2 million square feet of new retail leases, marking the strongest performance since the first quarter of 2014.

Though tenant demand has been consistently elevated over the past four years, a lack of available space has been restraining space commitments. Retailers can’t lease what’s not available, and for-lease inventory fell to an unprecedented low during the post-COVID demand surge.

With speculative construction limited and most of the space availabilities skewing toward older buildings in lower-income areas, expanding retailers were hard-pressed to find quality options to grow store counts.

A recent uptick in store closures, however, has freed up capacity for other retailers to expand, stoking leasing volume.

Dollar Tree, for example, signed about a dozen leases for more than one-quarter million square feet in the second and third quarters. Many of these were former 99 Cents Only locations that became available following the company’s bankruptcy filing in April 2024.

The commencement of new retail development is also helping alleviate the crunch of for-lease inventory. Two large-scale retail centers are in the works in the rapidly growing town of Buckeye.

Vestar is progressing on Verrado Marketplace, a 520,000-square-foot shopping center that is expected to have over 50 tenants at full build-out. Nearby, Sunbelt Investment Holdings is moving forward on a 427,400-square-foot center known as Buckeye Commons.

These projects, along with the ongoing redevelopment of PV, Metrocenter and Fiesta malls, provide additional options for expanding retailers.

Moving forward, competition for available retail space will likely remain robust as strong demographic patterns and healthy economic growth strengthen consumption. The median months to lease Phoenix retail space fell to a 15-year low of 6.4 months in the third quarter, reiterating tenant interest.

The factors governing future retail leasing volume have less to do with underlying space demand and more to do with for-lease inventory. If more available space comes to market in 2025, either through national retailer bankruptcies or the closure of mom-and-pop stores, a deep roster of potential replacement tenants seems poised to backfill them, likely keeping leasing elevated.