Retail vacancy across Phoenix drops to 40-year low of less than 5%

Consumer demand, population growth and new technology push foot traffic

Retail vacancy across Phoenix hits 40-year low of less than 5%
(Illustration by Priyanka Modi for The Real Deal with Getty)

Residents across Phoenix have flooded local stores, driving retail properties to their lowest vacancy rate in four decades.

Overall vacancy in the Phoenix retail market has fallen to 4.8 percent, the lowest since the early 1980s, AZ Big Media reported, citing an analysis by Velocity Retail Group.

The competitive market is fueled by consumer demand, population growth and major development in the technology industry centered around chip manufacturing.

Metropolitan Phoenix is experiencing high retailer demand, with a return of big-box users and the construction of retail “power centers” in Surprise, Buckeye and east Mesa. Stores that haven’t expanded since 2009 are once again growing their footprint.

Last year, Costco opened in Buckeye’s Verrado corridor, with Target and other national retailers committing to new stores at the 700,000-square-foot Village at Prasada in Surprise.

At the same time, there’s renewed demand for big box stores. With the higher costs of building, retailers are looking to expand within existing boxes they can retrofit for their stores, according to AZ Big Media. As a result, big box vacancies have fallen.

At the end of last year, metro Phoenix had 90 vacant big box stores — the lowest vacancy in a quarter century, according to Velocity. A year earlier, there were 123 empty boxes.

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In some cases, well-located boxes from defunct retailers such as Bed Bath & Beyond and Tuesday Morning were leased immediately. The leasing activity, or net absorption, was 2.8 million square feet. 

The 2.3 million square feet of big box vacancies make up more than a quarter of the region’s empty retail stores.

The best performing retail categories across Phoenix include smaller street-front, multi-tenant buildings with storefronts between 2,000 square feet and 2,500 square feet, with strong activity by restaurants, especially drive-throughs.

There are 1.17 million square feet of shops and restaurants under construction, compared to 1.3 million square feet at the end of 2022, according to the analysis.

With retail vacancies at a record low, retailers who serve clients from multiple platforms — including brick-and-mortar, e-commerce and other approaches to make stores more experiential — point to another strong year for retail, with continued growth across the Phoenix retail sector.

— Dana Bartholomew

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