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Phoenix Retail Surprises On The Upside In Q2

The sale of a new Pei Wei Fresh Kitchen ground lease at 10450 North 28th Drive in a dense infill area of Phoenix, though not the largest retail deal recently, illustrates the health of the retail market here.

Phoenix Retail Surprises On The Upside In Q2
Pei Wei, 10450 North 28th Drive

The 3,100 SF retail property is home to Arizona-based Pei Wei’s new prototype restaurant, which opened in late 2015. The restaurant fetched a sale price of $2.8M, or $903/SF, which is a market-leading 4.76% cap rate, according to CBRE.

Andrew Fosberg and Joseph Compagno with CBRE’s Phoenix office represented the seller, SWC 28th And Peoria Investors, an affiliate of Arizona-based A & C Properties. Investment Capital Real Estate's Ignacio Diaz Jr. represented the buyer, The Price-McPherson Trust.

“The long-term lease with Pei Wei, coupled with its location adjacent to Metro Towne Center, created significant investor interest and resulted in the market-setting cap rate,” Fosberg said.

Phoenix Retail Surprises On The Upside In Q2

The Phoenix retail market is in good shape. According to CBRE Research, healthy levels of positive net absorption, steady leasing activity and a notable decline in the marketwide vacancy rate all characterized the Phoenix retail market in the second quarter.

Big-box retail is doing particularly well. More than 458K SF of positive net retail absorption occurred in Q2, with 14 leases over 20K SF signed during the quarter. Absorption was driven by fitness, off-price and home goods/furniture retailers.

“With steady job growth and a hot housing market, the Valley exhibits strong fundamentals that are key to fostering a healthy retail market,” said CBRE First Vice President Todd Folger of the Phoenix office. “When a labor market strengthens, consumer spending climbs, and retailers gain the confidence to open or expand.”

Marketwide vacancy dipped 30 basis points on a quarterly basis (60 basis points on an annual basis), ending Q2 at 8.5%, according to CBRE data. The Valley’s retail space average asking rates ended Q2 at $16.68/SF.