Recession makes East Valley a retail black hole - East Valley Tribune: Business

Recession makes East Valley a retail black hole

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Posted: Tuesday, July 13, 2010 6:04 pm | Updated: 8:26 pm, Mon Jul 26, 2010.

The recession has turned the East Valley into the king of empty storefronts.

The region has more vacant shops than the rest of the Valley, and the area also had the biggest gain of empty space in the last three months than any other part of the Valley.

The increasingly ghostly nature of strip centers is the work of overbuilding followed by a harsh correction when the recession hit. The Valley's overall vacancy rate is now 12.2 percent, with the Mesa/Chandler/Gilbert sector at 14.7 percent.

"I don't think that we have been in waters like these in any of the cycles that any of us have seen," said David Josker, an associate director at CB Richard Ellis. "It's been at least two decades."

The Valley has 305 empty big-box stores, defined as spaces with at least 10,000 square feet. That's up from 299 at the end of March, according to CB Richard Ellis. Vacancies have been on the rise for 13 quarters in a row.

He expects the wave of departures is coming to an end, with the recession shaking out weak stores and healthier tenants getting lower lease rates as landlords try to keep their plazas filled.

"We're definitely back on track," Josker said. "People have adjusted their lifestyles. Any one who is in business now and has been in business four or five years, they have figured out how to survive."

Stores were more likely to exit newer areas as foreclosures deprived them of customers, he said, while more established areas tended to do better. Shopping plazas will recover as residents return to empty homes, Josker said.

But the recession will have doomed some plazas. Some neighborhoods have more commercial space than the population will support, and cities generally encourage owners to convert those properties to other uses.

That problem is most acute in Mesa, where 16 percent of space sits idle. West Mesa was hit especially hard about five years ago, when Mesa Riverview opened and lured many stores from old shopping plazas to a snazzier center that offers good freeway access.

Shoppers shouldn't expect to see stores in those old buildings again, said Bill Jabjiniak, Mesa's economic development director.

"I think that there's a significant amount that has to be changed," he said. "It's not just the recession. We were seeing empty big boxes before that."

Some places will have non-traditional uses like churches, charter schools or medical malls in existing buildings. Others will have to be razed for another use.

Mesa is aiming to transform its westside properties with a $17 million line of credit for real estate projects, which will focus on job creation, Jabjiniak said. The city is about to begin marketing the funds, which Jabjiniak said could create a big opportunity for improvement.

That part of Mesa will also get a boost in 2016, when three new miles of light rail open along Main Street. Reviving these properties will usually involve more than just signing leases with the kinds of tenants that had been there in the past, he said.

"Just because retail was there previously doesn't mean it's going to succeed again," Jabjiniak said.

Chandler has made a big push to revitalize struggling strip malls, said Christine Mackay, the city's economic development director. It's worked with landlords to fill vacant stores by studying neighborhood demographics and going after stores that seem to be missing from the area, she said.

But the city also does studies to see if that kind of effort is worthwhile. If the city can't find demand for more stores, it encourages property owners to move away from retail. Mackay points to the Warner and Alma School roads intersection, which initially was developed with retail on four corners. That made sense before the city had freeways and a mall, she said, but not today. The city worked with a landowner on that corner to convert a former Smitty's grocery to the Chandler Preparatory Academy, whose 800 students help support stores at the other three corners.

Chandler's vacancy rate had been one of the Valley's lowest, at about 7 percent. But that's jumped to 13 percent partially because Bashas' shuttered four stores in its bankruptcy reorganization, Mackay said. The city is working on those sites, Mackay said, but they are proving to be some of the biggest challenges to reuse.

The city also offers matching grants for façade improvements to plazas in the northern end of Chandler. That's helped bring life to mostly vacant centers, Mackay said. The city has made shopping centers an economic development priority because their visibility makes them an asset - or a huge liability if they sit vacant.

"Once the center starts to go, it really acts almost as a cancer and moves in the neighborhood," Mackay said. "To keep our community sustainable, it's important for the city to keep an eye on those centers."

The East Valley has some bright spots, such as Gilbert's 10 percent vacancy rate. The Tempe/Ahwatukee Foothills market is 9.7 percent vacant, according to CB Richard Ellis.

The numbers may paint a bleaker picture than exists today, Josker said. Tenants are signing leases in plazas where there has been no interest for more than a year, and more transactions have been taking place in the last six months, he said. Those tenants are working behind the scenes now as they prepare to open.

"Deals are starting to get done," Josker said. "Centers are starting to fill back up."

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