Vestar, which owns more than 60 retail centers in the southwest, and Washington and Utah, is working to line up financing for the construction of over 600,000 square feet of retail space across three centers in the greater Phoenix area.
David Larcher, president and COO, told Real Estate Capital USA that the firm is evaluating lenders for the trio of planned projects, but it is likely that local banks in the Arizona market will hit the bid. The firm expects to have a lender in place in the next 90 days.
“The institutional capital is starting to discover that retail, in spite of what [it] has gone through the last few years, provides a nice risk-adjusted return compared to the other product types,” Larcher said. “[The way in which restrictions around covid-19 were handled] is the main factor determining the performance of the existing tenants in the particular market.”
Although the past 18 months of the coronavirus pandemic and government-mandated restrictions have hobbled the service industry across the country, Larcher said that retailers in the Sunbelt, and particularly in Greater Phoenix, have found themselves facing a vastly different predicament.
“Tenant sales as well as traffic [in greater Phoenix] have well exceeded 2019 pre-pandemic levels,” Larcher said. “We’re seeing unprecedented demand for our space in the existing assets that we have in the market.”
The planned centers will be in the Queen Creek and Peoria sub-markets, just a few miles from downtown Phoenix. Plans include:
- Queen Creek Crossing: a 31-acre site near Arizona State University, the Phoenix-Mesa Gateway Airport and the Queen Creek Marketplace in Queen Creek. Vestar said Queen Creek Crossing will consist of 300,000 square feet of retail and medical space anchored by Costco and that groundbreaking is slated for June 2022.
- Vineyard Towne Center: a multi-phased retail center proximal to the Banner Ironwood Medical Center and the Encanterra Golf Course in Queen Creek. The first phase of the project will consist of approximately 75,000 square feet of retail space. When completed, the project will comprise approximately 250,000 square feet of retail anchored by a specialty grocery store and a discount department store.
- Shops at Lake Pleasant: a 90,000-square-foot retail center in Peoria immediately adjacent to Vestar’s Lake Pleasant Towne Center. Larcher said the tenant roll will primarily consist of restaurant tenants with some room for service-oriented tenants.
Overall vacancy in greater Phoenix decreased 20 basis points on a quarter-on-quarter basis while the year-to-date net absorption reached 496,542 square feet by the end of June, according to second quarter 2021 data from Colliers.
Investment sales in the retail sector reached $350.5 million in the second quarter of 2021 and increased 19 percent over the first six months of 2020. Additionally, retail spending is rising in the Phoenix area.
“Pent-up demand resulted in a retail spending increase of 25 percent compared to January 2020,” Phillip Hernandez, research manager for Colliers wrote in July. “Phoenix maintains its top metro position for net migration for the [third] consecutive year from July 2019 to 2020, so our market is witnessing more and more demand for retail outlets entering the area.”
The report also noted that suburban retail development makes up more than 80 percent of construction as developers actively work to keep up with the strong growth.
On the retail side, the US Census’ Building Permit Survey reported in August that the Phoenix metropolitan area has issued a total of 35,345 residential construction permits so far in 2021, a slight increase from the 29,996 residential construction permits issued from January to August 2020.
According to a report from August from The Center Square, the state of Arizona saw a record 28.8 percent growth in tax revenue collections at the end of the fiscal year on June 30, 2021. Arizona saw a 16 percent increase in sales tax collections, an 18 percent increase in individual income tax liability excluding deferred funds and a 66 percent increase in taxable corporate gains.