Economic recovery won't fix glut of East Valley retail space - East Valley Tribune: Business

Economic recovery won't fix glut of East Valley retail space

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Posted: Sunday, April 1, 2012 9:14 am | Updated: 1:48 pm, Mon Apr 2, 2012.

The depth of the Great Recession was front and center in the daily lives of East Valley residents as storefront after storefront emptied out of the area’s countless and prominent shopping centers.

But as a recovery shows signs of gaining strength, those retail centers aren’t likely to come back to life at the same pace as the overall economy. And some will never rebound.

The problem begins with the East Valley’s retail vacancy rates. They’re the highest in the Valley.

Trends in the local and national retail scene only add to the problem. New retail will be tougher to get with the growth of online sales, the demise of many national chains and more chains operating out of smaller stores.

This stark reality was laid out by a blue-ribbon panel of experts in Chandler, which assessed the state of its commercial areas and how it could foster a turnaround.

The panel of 22 real estate and development experts found the East Valley suffers from a glut of retail space.

The task force recommended a variety of strategies to improve the health of shopping centers. The plan involves easing city regulations and working more closely with developers and tenants. The panel also called for replacing dead shopping centers with other uses, especially high-density residential.

The retail overabundance dates to the 1960s, said Kevin Schuck, a panel member and a senior vice president with commercial real estate firm CBRE in Phoenix. Commercial zoning was established at most or all four corners of major intersections, and the practice was initially successful, he said.

But as the Valley spread, tenants jumped to newer shopping centers a few miles away while the excess retail space remained. Schuck said the decades-long trend reminds him of the classic advertising campaign that featured a mechanic who warned, “You can pay me now, or you can pay me later.”

“Later is now,” Schuck said.

While some centers will regain tenants as the economy improves or as renovations make them more desirable, Schuck said some places need to be redeveloped into other uses.

“I think the vacancy in areas speaks for itself,” he said. “And the greater vacancy, the more likely it is that it gives you the answer that in places, we are over-retailed.”

The East Valley’s vacancy rate is at 16.2 percent, compared to 12.4 percent for the entire Valley. The East Valley has 117 empty “big box” stores, amounting to 3.46 million square feet, according to CBRE.

Chandler’s retail panel concluded the Valley has too much retail space based information from the International Council of Shopping Centers.

Chandler has 71 square feet of retail per capita, while the East Valley has 43 square feet per capita. Nationwide, the average is 47 square feet per capita — well above other industrial nations.

The Chandler panel recommended the city take many steps to make redevelopment easier. Members said Chandler should roll back excessive requirements for parking, signs, and landscaping. It called for the city to assemble a team of employees from multiple city departments so it’s easier for tenants and property owners to navigate the development process.

The group also wants aggressive business recruitment, to have the city tear down blighted retail buildings, and to allow higher density multifamily housing to replace some old shopping centers.

Chandler Mayor Jay Tibshraeny said he expects the City Council will move forward with the recommendations within months and that vacancy rates will fall with an improving economy. Tibshraeny said the city needs to prevent repeating the problem in future development.

“We probably shouldn’t be zoning four corners retail anymore,” he said.

Schuck agreed cities should rethink commercial zoning.

“We’ve continued to produce retail and at times it works against us, depending on the densities of the area,” he said.

East Valley residents can expect more vacant spaces as existing chains renew their leases, according to the panel’s research. Stores including Kohl’s and TJ Maxx all want to shrink their floor space. Best Buy is also shrinking, from an average of 40,000 square feet in 2007 to 33,000 square feet in 2011. At Office Depot, the company is opening 5,000-square-foot stores that are one-fifth the size of old locations.

The vacancies will come after Valley cities saw empty space grow in part from the demise of chains like Borders Books, Ultimate Electronics, Circuit City and Mervyns. Locally, Bashas’ pulled out of multiple shopping centers through a bankruptcy that shrunk the Chandler-based grocer.

One challenge for cities is they can’t always predict which centers are less likely to rebound and should be a focus of redevelopment, said James Smith, an economic development specialist in Chandler. That was the case with a former Albertson’s in Chandler, where Phoenix-based M.D. Pruitt’s recently announced it will open a furniture store.

“We didn’t see that coming,” he said. “We’re excited that it did, so I don’t think we can make judgments what can be retail and what might be a different use.”

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