Storefronts hit by the recession finally starting to fill - East Valley Tribune: Business

Storefronts hit by the recession finally starting to fill

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Posted: Sunday, February 5, 2012 7:27 am | Updated: 8:32 am, Fri Feb 10, 2012.

Vacant storefronts and restaurants are finally starting to fill spaces that emptied in the recession, and that retail turnaround is strongest in the East Valley.

The improvement is the result of higher consumer confidence, strong holiday sales and a pent-up demand to buy stuff, according to real estate brokerage NAI Horizon. Retail vacancy rates had been largely stagnant for two years, but fell from 12.4 percent to 11.9 percent in the final quarter of 2011.

New leases were signed for 909,759 square feet of retail, with 328,513 square feet of that in the East Valley.

Momentum has been building since the last half of 2011, said Gabriel Ortega, who oversees NAI Horizon's retail division. But the growth is still not on par with what was considered healthy during the past decade, he said.

"It's probably pretty average," Ortega said. "But with what we've unfortunately become accustomed to in the last 12 quarters, it's pretty darn good."

NAI Horizon considers one of the bright spots in the recovery to be downtown Tempe's Mill Avenue. It struggled not only from the recession, but the loss of Harkins Theatres and other national brands as Tempe Marketplace opened two miles away.

Tempe got a big boost when the West 6th condo towers opened last year, nearly three years behind schedule, he said. The influx of residents will support more retail.

"It's really going to create that urban feel that the city has been trying to build for the last 10 years down there," Ortega said. "It will be, I think, the catalyst for bringing the area back."

Much of the Valley's retail growth is in spaces up to 10,000 square feet. Locally owned or small companies are taking advantage of low lease rates to grow their market share, Ortega said.

The retail recovery will be slow to outlying areas that experienced a home building frenzy from 2005 through 2007, Ortega said. The high number of distressed properties, investor-owned homes and rentals makes it too difficult to reliably gauge how many potential customers are in the area, he said.

The biggest challenge remains filling big or mid-range anchor stores.

"Unfortunately, those types of tenants are typically the larger corporations and we've seen that those corporations are sluggish in their plans, and they've been pretty conservative," he said.

An exception is WinCo, a grocer based in Idaho. It's renovating a 139,000 square foot building that was once a Costco at the southeast corner of Power Road and Southern Avenue. It plans to build another store in Gilbert, at the southeast corner of Pecos Road and Market Street in Gilbert.

New construction is also on the rise. About 215,000 square feet of retail is being built, a fraction of the 6 million to 10 million square feet that went online in 2006 and 2007. If the current pace of declining vacancies continues, it would take until late 2013 before Ortega sees demand for much new retail space.

When that happens, he sees a more conservative approach to how shopping centers are built.

"Gone are the days of people building a center 30 percent preleased and they build it with the assumption that the rest of the people are just going to come," Ortega said.

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