Excerpts from
REIN RETAIL REPORT
Market Overviews

2001 Market Summary

The “build it and they will come” philosophy continues to be true and the developers are making the most of it. Almost five and a half million square feet (comprised of 34 centers) came on-line in 2001. That eclipses the just over two million feet that came on line in 2000. What is amazing is that 85% of the 2001 space is leased, which is a similar number to 2000. This is an obvious validation to the strength of this market. Ten centers are projected to come on line in 2002 with a total of 1,249,526 square feet. 67% of this space is pre-leased, which is also a better number than in 2000. This development market still has a lot of steam evidenced by the 29 centers with almost 5.1 million square feet that are in the planning stages. 3.45 million feet of this is anchor space and 1.65 million feet of this is non-anchor space. The Northeast Valley is now the most active area with 1.98 million feet planned. Next is the 1.17 million feet planned in the Southeast Valley, which has set the pace for the past few years. The Northwest Valley is the other active area with 1.08 million feet coming. Net absorption numbers were phenomenal especially considering all the major tenant closings in 2001. There was a net reduction of available space of 3,738,383 square feet, and this was substantially higher than the 2000 number of 1.4 million feet. 52% of this absorption was in the Southeast Valley and 37% was in the Northeast Valley. The overall vacancy rate in Metro Phoenix has increased to 9.3%, up from 7.6% at 2000 year end.  The vacancy rate for unanchored Strip centers has stabilized and remains at 10.0%.  Regional malls increased four points from a year ago to 10.0%, Neighborhood centers have 9.6% vacancy which is up one point from last year and Community/Power centers come in the best at 8.2% compared to 6.5% twelve months ago. New centers are still getting rents that average 33% higher than centers that are 1 to 3 years old. The current vacancy stands at 8,601,173 square feet.

2000 Market Summary

With absorption numbers and overall occupancy rates staying strong, developers continue to build shopping centers at a furious pace. Just over two million square feet  (comprised of 26 centers) came on-line in 2000. 84% of that space is leased. Fourteen centers are currently under construction with scheduled completion dates in 2001 with a total of 3,548,185 square feet. 60% of this space is pre-leased. The statistic that indicates this wave of  construction still has a lot of steam is that 52 centers with just over 8.6 million square feet are in the planning stages! 4.8 million feet of this is anchor space and 3.8 million feet of this is non-anchor space. Almost 3.2 million feet of the planned space is in the Southeast Valley, 3.0 million feet is in the Northeast Valley. And 1.7 million feet is in the Northwest Valley. Net absorption numbers were still strong with a net reduction of available space of 1,395,367 square feet, but this was substantially lower than the 1999 number of over 2.3 million feet. 71% of this absorption was in the Southeast Valley. Net absorption was impacted by a number of big box spaces that were returned to the available inventory due to some chain store closings. The overall vacancy rate in Metro Phoenix has dropped from 9.2% at 1999 year end to 7.6%.  The vacancy rate for unanchored Strip centers continued its decline and is now at 9.5%.  Regional malls have a 5.8% vacancy rate down from 14.4% a year ago, Neighborhood centers have 8.5% vacancy which is up slightly from last year and Community/Power centers remain strong with a vacancy factor of 6.5% compared to 7.0% twelve months ago. Reinforcing the fact that tenants will pay premiums for new space, new centers less than one year old are commanding rents that average 33% higher than similar centers that are one to three years old. The current supply of vacancy stands at 6,617,365 square feet.

1999 Market Summary

1998 Market Summary

current supply of vacancy stands at 7,480,362 square feet. All but about 172,000 square feet of that is in centers over three years old. Leasing activity has obviously remained good and lease rates have been increasing. There is a lot more talk among owners of existing centers that they are finally getting away with significant rent increases. As recently as a year ago, there was not that great of a level of expectation for rent increases. New centers continue to attract tenants at rates well into the $20’s. Los Arcos Mall was just approved by voters for a redevelopment plan that will include an arena for the Phoenix Coyotes hockey team. Watch for the south Scottsdale/north Tempe area to light up in the next few years as this mall and Rio Salado become a reality. There are certainly some undervalued properties in this area that could make great investments. Scottsdale Waterfront continues to create excitement as this development gets closer to ground breaking. There appears to be no end to this booming development market where major projects are being planned and built in Chandler, North Scottsdale and Deer Valley, just to name a few.

1997 Market Summary

Retail development is still going at a strong pace primarily because the new space is leasing so quickly. 3,963,053 square feet were added to the supply in 1997- over 1 million feet more than in 1996. Almost all of this was new neighborhood centers. 93.1% of the new space has been leased. Six centers are currently under construction with a total of 652,205 square feet. 82.9% of this space is pre-leased. The new development in 1997 was concentrated in the Southeast Valley where over 1.7 million feet were built- much of which was in The Arizona Mills Mall. The overall vacancy rate in Metro Phoenix is 9.1% and the leasing market is tightening for all size centers. The vacancy rate for unanchored strip centers has now dropped to 11.0%. Regional malls have an 11.5% vacancy rate, Neighborhood centers have 9.2% vacancy and Community/Power centers still have the best vacancy factor with 6.7%. Absorption remains very strong with a net reduction of available space by 3,356,679 square feet. 1,529,970 square feet of that was in the Southeast Valley- that continues to be the most active market area. The Northeast and Northwest regions were next best with 581,780 and 526,745 feet absorbed, respectively. The current supply of vacancy stands at 7,575,536 square feet. All but about 318,000 square feet of that is in centers over three years old. Leasing activity has been excellent and lease rates have been increasing. Some new centers have been achieving rents well into the $20’s for their best spaces. Several large projects are being planned including the Scottsdale Waterfront and a new mall and adjacent power centers in Chandler that will keep the new inventory numbers high for at least a couple more years. As long as population growth continues at such a strong pace, retailers continue to aggressively expand and abundant cheap capital is available, expect this market to continue to be very hot for several years, at least.

1996 Market Summary

Retail development continued at a strong pace in 1996. 2,890,775 square feet were added to the supply in 1996. 95.3% of this space has been leased. Seventeen centers are currently under construction with a total of 1,851,782 square feet. 76.6% of this space is pre-leased. The new development is concentrated in North Scottsdale and the Southeast Valley. The overall vacancy rate in Metro Phoenix is 9.3%. Every size center improved occupancy on average since last year except for regional malls. The vacancy rate for unanchored strip centers has now dropped to 12.8%. Regional malls have a 12.2% vacancy rate, Neighborhood centers have 8.7% vacancy and Community centers still have the best vacancy factor with 6.7%. Absorption remains very strong with a net reduction of available space by 3,307,670 square feet. 1,458,388 square feet of that was in the Southeast Valley- that continues to be the most active market area. Northeast and Northwest regions also had good activity. The current supply of vacancy stands at 7,301,585 square feet. All but about 294,000 square feet of that is in centers over three years old. Leasing activity has obviously been very good and should continue for a while. Neighborhood centers still dominate new development although the grocers are starting to say that they won’t commit to any more new sites until 2000. Watch out for unanchored strips centers to start coming out of the ground. Several are being planned.

1995 Market Summary

Although retail development has slowed, primarily due to smaller developments, 1,521,781 square feet was still added to the supply in 1995. 98.4% of this space has been leased. Thirteen centers are currently under construction with a total of 1,045,836 square feet. 91.6% of this space is pre-leased. The new development is spread fairly evenly between North Scottsdale, the Southeast Valley and the Northwest area. The overall vacancy rate in Metro Phoenix is 9.8% if you exclude the .5% of vacant space that is already committed. Virtually every size center has improved occupancy on average since last year. The vacancy rate for unanchored strip centers has now dropped to 15.7%. Regional malls have a 10.1% vacancy rate, Neighborhood centers have 9.1% vacancy and Community centers still have the best vacancy factor with 7.6%. Absorption remains very strong with a net reduction of available space by 3,766,204 square feet. 1,486,280 square feet of that was in the Southeast Valley- that continues to be the most active market area. The current supply of vacancy stands at 7,402,794 square feet. All but about 200,000 square feet of that is in centers over three years old. Leasing activity has obviously been very good and should continue for a while. Neighborhood centers have dominated new development. There are several large projects on the drawing boards in the East Valley that are a couple years away, though. The race is on between two developers to see who can get out of the ground first with their malls in Tempe. Westcor also has a mall and power centers planned in Chandler at the Price Expressway and Chandler Blvd.

Recognizing the fast pace of development and the reduced need to create incentives for new construction, Metro area mayors have recently agreed not to provide retail developers any tax incentives to build for the next six months. The locations of many big projects have been swayed in recent years by municipalities bidding against each other with tax incentives to lure projects into their area. The mayors agreed not to make any deals with developers for six months while they work out an agreement amongst themselves to further limit incentives in the future. In the private sector, isn't that called price fixing and unfair business practice?

1994 Market Summary

Retail continues to be the most active area of commercial development. The numbers for 1994 were amazing. 3,828,523 square feet were added to the supply. Most of this space has been leased. 1,441,792 square feet is expected to be completed in 1995. Much of this will be in Northeast Phoenix and Scottsdale. The overall vacancy rate in Metro Phoenix is 10.2% if you exclude the 1.3% of vacant space that is already committed. It is important to note that the vacancy rate for unanchored strip centers has dropped to 17.1%. "Mom and Pop" businesses as well as other small tenants have been active and, as a result, even the strips are experiencing good leasing activity. Regional malls have a 12.2% vacancy rate, Neighborhood centers have 10.3% vacancy and Community centers still have the best vacancy factor with 9.8%. An incredible 4,660,106 square feet were absorbed in 1994. 2,740,770 square feet of that was in the Southeast Valley. The current supply of vacancy stands at 7,594,808 square feet. An important thing to note is that 831,583 square feet of the pre-existing inventory was absorbed in 1994- which is very good. We should continue to see vacancy rates fall and lease rates increase as construction slows. Power center development is close to its saturation point and there is a shift to neighborhood center development as several grocers have been rapidly expanding. Over 30 of these centers are currently being developed.

This will also result in the first significant amount of speculative small shop space built in many years. This should pose little threat to the existing inventory because the asking rents for new centers are so high ($14.00 to $20.00/ sq. ft.). Although, the first tenants into a new center are willing to pay these rates, the real test is will they be able to generate sales volumes necessary to maintain these high rate levels. Given the category killer nature of the larger box grocers that small tenants like to locate next to, this may prove to be difficult. Conclusion: Build. Lease. Sell.

1993 Market Summary

Although retail development is about half of what it was in 1990, it is still very active. There is very little speculative building being that 91.7% of the 2,551,293 square feet under construction is committed to lease. In fact, 96.4% of the 8,603,994 square feet of vacant space is over twelve months old. Net absorption was 1,401,583 square feet in 1993- still leaving a 6.2 year supply of space. Leasing activity was concentrated fairly evenly in the Northeast, Northwest and Southeast valley regions. The Central and Southwest regions had much lower absorption numbers. The overall vacancy rate in Metro Phoenix is 12.6%. This number only increases to 13.2% by excluding Regional Malls. Strip centers have the highest vacancy rate at 21.3% but that is down from 27.0% a year ago.

Power centers and big box users are still driving new development. Thomas Mall is now dust and at this moment is a vacant lot- but will soon be a power center. Every major tenant in the city is trying to get into the project. The Colonnade Mall is being rebuilt and half of the existing buildings have been scraped. Power centers have been or are being built next to almost every other mall in the city too. Opus Southwest and Westcor are the two developers building most of this space.

1992 Market Summary

Retail continues to be the most active area of commercial development. 1,519,640 square feet were added to the supply in 1992. 74% of this space has been leased. 1,380,000 square feet is expected to be added in 1993. Almost all of this will be in the Arrowhead Mall area in Northwest Phoenix. The overall vacancy rate in Metro Phoenix is 14.9%. It is important to note that the vacancy rate for unanchored strip centers is 27.0%. In spite of this statistic, recently purchased low priced centers offering very low rates are experiencing good leasing activity. Surprisingly, regional malls have an 11.7% vacancy rate. Neighborhood centers have 14.2% vacancy and Community centers have the best vacancy factor with 10.2%. 1,942,495 square feet were absorbed in 1992. At that rate, the current supply of 9,956,211 vacant square feet will be absorbed in 5.1 years- assuming no new construction, which we know isn't happening. It is interesting that 8,645,623 square feet have been built in the past three years and 89.4% of that is leased. Obviously, the older properties with poor designs and less desirable locations are having serious problems.

Source of statistics: Arizona Real Estate Center/ Coopers & Lybrand.

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