Consumers’ Negative Outlook Doing Little to Dampen Retail Investors’ Dispositions in Phoenix
Phoenix, AZ – October 26, 2011 – (RealEstateRama) — Many retail market indicators continue to improve, despite erratic employment trends and sovereign debt worries. These economic headwinds have strongly impacted consumer sentiment, dropping third quarter expectations to the lowest point since early 2009, when layoffs peaked. Still, retail sales reached an annualized average of $380 billion in September, up 7.6% year over year. Total nonfarm payrolls have expanded by nearly 1.1 million positions so far in 2011, with the wholesale and retail trade sectors alone adding 205,000 workers combined. Rising retail payrolls and sales, in turn, have supported investor interest. An estimated $21.5 billion in retail assets have sold over the past six months, more than double the transactions recorded during the same stretch in 2010. Steady employment gains are predicted to keep inves tor confidence and deal flow near current levels through year end. In 2011, a total of 1.4 million jobs will be added, a 1.1% increase, while the key wholesale and retail trades will expand by 256,000 positions, or 1.3%.
Similarly bright local retail market indicators have provided a steady boost to Phoenix investment velocity. In the most recently reported month of July, Arizona retail sales reached an annualized average of $3.9 billion, an 8.8% year-over-year gain; in the preceding 12 months retail sales plunged 5.6%. Rising sales statewide have trickled down to the metro level and encouraged hiring in many industries. Robust gains in the Valley’s education and health services and leisure and hospitality sectors have helped expand metrowide employment by 18,700 jobs year to date, with local wholesale and retail trade companies adding 3,900 workers. For the year, total employment in the Phoenix MSA will increase by 24,000 jobs, or 1.4%, while wholesale and retail trade industries will add 5,900 positions, a 2.1% gain.
Single-tenant retail velocity remains elevated, as deal flow year to date has nearly eclipsed the total number of sales recorded in 2010. Investors’ comfort with general free standing retail is increasing, buoying velocity. Space occupied by Class B-quality free standing tenants typically trades with cap rates in the high-7% to mid-8% range, though yields for top-quality retailers and desirable locations can dip below 7%. Velocity has also accelerated for convenience store and restaurant assets, compressing cap rates an average of 50 basis points so far this year. First-year yields for convenience stores currently average near 7.75%, while cap rates for most restaurants start at 8%.
Along with rising distressed-asset deals, sales of stabilized shopping centers have also boosted multi-tenant velocity. Through the recession, shopping center owners largely avoided listing performing assets. In recent months, however, many owners have realized that the lack of operationally sound product on the market has sufficiently stoked demand, which should mitigate price declines. As a result, institutional owners are marketing properties with the intent of freeing up capital for higher-yield reinvestments. Multi-tenant deal flow has surged by more than four fold in the past year, while the median price has increased 51% to $86 per square foot. The price increase is due to a greater percentage of performing-asset sales and a comparatively smaller level of transactions in the preceding 12 months, not rising retail property values.
About Lee & Associates Arizona Research Division
In addition to celebrating 20 years of leadership excellence in commercial real estate in the Phoenix market, Lee & Associates is one of the largest national commercial real estate providers with regional expertise. Lee & Associates currently has more than 40 offices located throughout the nation. Clients of Lee & Associates Arizona enjoy a comprehensive range of specialized commercial real estate services including: industrial, multi-family, office and retail property sales and leasing; real estate investment consulting, property acquisition and disposition; tenant representation and relocation, land assemblage. The Phoenix office of Lee & Associates was established in 1991 as the first office to open outside of California. The Lee & Associates model – empow ering agents as owners of the company – attracts industry-best real estate agents and has fueled the Phoenix office’s growth from 12 brokers in 1991 to nearly 40 brokers today.
