Why Retail Absorption's Poised To Heat Up In Q4

Absorption slowed in the greater Phoenix retail market during Q3, but didn't quite stop. It'll just be a lull, with the pace picking up in Q4, according to Colliers International in Greater Phoenix research director Pete O’Neil. 

Net absorption slowed to just 77k SF last quarter, and retail vacancy rose for the first time since 2014, according to Colliers data. Even so, Pete anticipates a strong finish for 2016 as fourth-quarter retail picks up pace. A solid Q4 will mean the third-quarter performance was a short-term slide, as opposed to a change in direction of the Phoenix retail market.

Part of the forecast increase in net absorption will be from move-ins already slated to occur in the fourth quarter. "Two new Fry’s Foods stores will account for nearly 250k SF of net absorption, for example," Pete says.

"We're also seeing some stores that were vacated in the second and third quarters getting successfully re-leased with move-ins scheduled for the fourth quarter," Pete says. Finally, the gains in the housing market are driving some new store openings in home goods retailers.

Asking rents rose during the past three months, but are up less than 1% from a year ago. Stronger rent growth will come when the market returns to a more robust pace of absorption, Pete says. Some of the strongest rent growth is in the West Valley, where vacancy is low and net absorption has been steady for years. East Valley rents have pushed higher as well, but vacancy improvement has leveled off in this area.