Kerry Linthicum

Kerry Linthicum
Vice President

Set against the backdrop of a thriving economic picture and fueled in large part by an expanding and educated population, the Phoenix retail market is poised for growth and change. The city is shedding its half-step-behind status and preparing to take its place close to the retail vibrancy of major gateway US cities, creating a unique ground-floor opportunity for investors.

The difference here is that, unlike the major gateways, Arizona as a whole boasts a comparatively low cost of doing business. Phoenix also enjoys efficient infrastructure that connects the entire metro and a growing and diverse population. These features make it a magnet for investors with the vision to break from the herd.

As CBRE research indicates, in 2018, the metro added 68,080 jobs, expanding its base by 3.3%. This growth ranked Phoenix third for metro employment growth on a percentage basis and fourth for number of jobs added. The economic outlook for Phoenix is positive in 2019, bolstered by more job and wage growth and corporate expansions and relocations to the metro.

While Phoenix has home-grown talent graduating from the largest public and private universities in the country (Arizona State University and Grand Canyon University), the net migration of talent to Phoenix is also growing our labor pool. Additionally, empty-nesters are flocking to Phoenix to experience the same live/work/play environments so popular with the younger crowd.

All of this, of course, translates directly to the retail bottom line. Steady demand for space and limited construction support Phoenix retail fundamentals. On the supply side, retail developers have avoided the temptation to overbuild. New supply has been consistently below a million square feet since 2010, resulting in a healthy supply / demand balance.

Agile retailers that adapt to consumer preferences and the evolving retail landscape by creating experiences and embracing technology will be successful in 2019. Steady retail demand, combined with conservative levels of new supply, bode well for Phoenix retail metrics this year. That retailer agility is manifest in the arrival of such first-to-market concepts as Meow Wolf, Toca Madera and Punch Bowl Social.

When it comes to reimagining the shopping experience, live-work-play centers must address the consumer “want” as well as “need.” As a result, entertainment and dining experiences, boutique fitness concepts and specialty beauty services are a few examples of concepts designed to create a feeling of community and provide an experience one can’t replicate on a computer.

Increasingly, mixed-use developments, such as the 700,000-square-foot Scottsdale Quarter, are providing customers with the experience of place, known in the industry as placemaking. At Scottsdale Quarter, ownership does this with such innovations as green spaces, splash pads for the kids, movie screens for the public and even an Instagram wall. Through the power of Streetsense, CBRE’s in-house experience-focused design strategy group, retailers and landlords are also able to drive the live-work-play concept forward with thoughtfully created custom brands and environments.

It should be noted that Scottsdale Quarter is now undergoing an expansion to accommodate some 35,000 square feet of retail space and more than 300 multifamily units. This growing combination of mixed uses not only underscores the live-work-play lifestyle that Phoenix embraces, but also provides evidence of the growth of the MSA in general.

Retailers in such locations benefit from robust location-analytics services, such as those CBRE provides, to help our clients better target local consumers. This mostly entails analysis of customer traffic patterns into, out of and inside of a given trade area. From this analysis, CBRE and its clients can gain insights such as the times people most often visit the center, from where they come and the general demographic characteristics of the center’s clientele on an aggregate basis. Armed with such intel, retailers can become more strategic in their site selection and merchandising, and retail landlords can better focus their leasing strategies to their clientele’s tastes. It’s a classic win/win.

There’s clear evidence in the Phoenix market of retailers’ omni-channel strategies, such as Warby Parker, Indochino and Lululemon, which successfully marry the convenience of clicks with the unique experience of bricks. Not only do they offer the convenience of such strategies as buy-online/pick-up-in-store, but Lululemon (and even longstanding retailers such as Nordstrom in its small-shop venue) now provide in-store tailors to customize outfits.

Restaurants of course are key to the shopping experience, and foodies of all ages are enjoying the growth of local restaurants, such as True Food Kitchen, that offer health-conscious options and creative chef-driven eateries for virtually every pallet.

This is an exciting time for Phoenix retail, which translates into an exciting time for retail investors. As more concepts turn to Phoenix for its strong value proposition, the outlook for Phoenix grows brighter.

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