“The pendulum is swinging closer toward market equilibrium from the heady days (for tenants) of highly competitive concessions,” reports Cushman & Wakefield/ PICOR. Along these lines as reported by Reis, improving conditions in the community-neighborhood shopping center segment, counted by the firm at 12.1 million square feet, have brought the return of growth to average rents. Alongside no newly delivered supply, net absorption for the first half of 2012 was 47,000 square feet (the second quarter total was 59,000). Vacancy, as a result, shed 50 basis points during the latest quarter and declined by 40 since year-end to cross the mid-year mark at 9.8%, 100 basis points lower than the national rate for this property category. More than three years of rental losses, accordingly, have been followed by the onset of a new, if modest, positive growth trend. At $16.70 psf and $14.26 psf, the asking and effective averages for the latest quarter were up 0.4% and 0.5% for the period and were up 0.7% and 0.8% year-to-date. While July-August followed with 7,000 square feet of negative absorption, Reis’ mid-year analysis anticipates a modest positive total overall for the remainder of the year. Vacancy as of August was unchanged from two months prior; both average rents grew by 0.2% over the July-August time span.
Following no deliveries since 2010, construction has returned to the community-neighborhood shopping center sector, albeit in small volume. A 14,576-square-foot community center redevelopment project started in March at the former Mervyn’s store located on an outparcel at 5555 E. Broadway Boulevard. And construction commenced in June on an 81,000-square-foot building at an adjacent location at the former Mervyn’s site. “Strong activity and continued interest has remained in the Broadway Corridor,” reports Cushman & Wakefield/PICOR. The largest project under construction as of mid-September was the 389,700-square-foot second phase of the Tucson Marketplace at the Bridges power center at E. Tucson Marketplace Boulevard and S. Kino Parkway. Construction began in January. The 225,600-square-foot first phase completed last August. The Steam Pump Village regional center at Oracle Road and N. First Avenue, a portion of which opened several years ago, remains under development. Reis cites a total size of 300,000 square feet. Also under development are 68,000 square feet of neighborhood center retail at the Mercado at Canada Hills mixed-use project at 10500 N. La Canada Drive.
“Retailers continue to move up to higher quality locations, with tenants including JoAnn’s, Stein Mart and Cost Plus taking advantage of higher traffic locations with visibility near Tucson’s major malls,” states Cushman & Wakefield/PICOR. Backfilling of former Blockbuster locations continues, attracting a variety of tenants including retailers, restaurants, and medical and urgent care clinics. And, following a July court ruling, Walmart is “moving forward” with a project at the site of a former Macy’s store at El Con Mall on E. Broadway. The fight against Walmart, however, may not be over. “The new opinion marks the fourth time that an adjacent neighborhood’s dogged efforts to stop the 24-hour mega-retailer from opening have fallen short,” Arizona Daily Star reported in July. “But they’re not giving up yet.”
The return of positive net absorption is expected to lower the community-neighborhood sector vacancy rate to 9.6% by year-end. Rent growth
slightly above 1.0% is projected for the year. A relatively flat performance also is expected for this sector for 2013. For all retail, “upward pressure on rents is not foreseen any earlier than the first half of 2013,” advises Cushman & Wakefield/PICOR.