As the absorption of existing space runs at a modest pace, the retail race is being led by another base. New construction, raze and rebuild, expand by renovation, and gather the old to build-anew projects are heading the sector.
“We could easily call this the Wal-Mart invasion. That and the C-Stores (convenience). QuikTrip and Circle K are really aggressive right now. They are assembling properties to get the larger sizes they need,” said Pat Darcy, Tucson Realty & Trust executive and retail specialist.
About two years ago, Wal-Mart Stores identified the Tucson area as a market with many “under-served pockets of neighborhoods.” Since then, it has launched at least five projects in various stages of development and planning.
Its largest is a new 156,000 square-foot supercenter at The Bridges, Kino Parkway and 36th Street, due to open later this year. In the 90,000 to 100,000 square-foot range, Walmart stores are being planned for 3413 E. Broadway in El Con Mall and on vacant land at 2711 S. Houghton Road.
And in June, Wal-Mart closed on 11 acres of land for $2.97 million on the southwest corner of Houghton Road and MaryAnn Cleveland Way.
Razing and rebuilding is rocking at two outdated plazas. Portions of the Rolling Hills Shopping Center, 2550 S. Kolb Road, and Berkshire Village, at East Broadway and South Camino Seco, are being redeveloped as 40,000 square-foot Walmart Neighborhood Markets.
The region’s highest-profile renaissance is in midtown where a new Stein Mart, Hobby Lobby, Mattress Firm, and Vitamin Shoppe are reviving the northeast corner of East Broadway and Craycroft Road. The 7.4-acre site, last occupied by a Mervyn’s Department Store, is getting a total makeover from owners Benenson Capital Partners, New York.
Nancy McClure, CBRE first vice president, brokered the deal that brought the four tenants into the long-vacant parcel. Stein Mart and Hobby Lobby will occupy the existing 81,000 square-foot building. Mattress Firm and Vitamin Shoppe will take part of a new free-standing, 14,500 square-foot pad. Some retail space is still available on the pad.
For the total retail category, the vacancy rate dipped from 8.6 percent in the first quarter to 8.5 percent in the second quarter. Absorption was 74,762 square feet, putting the year-to-date pace at positive net 37,896 square feet, according to CoStar Group.
“Positive is positive. The Tucson retail market did experience a slight increase in occupancy,” said Greg Furrier of Picor Commercial Real Estate Services. “Looking back over the past two years, vacancy has been hovering in the mid-eight percent range with only minor fluctuation.”
Average quoted rental rates ended the quarter at $14.50 per square foot per year, 8 cents higher than the first quarter. One year ago, CoStar reported the value was $14.89, or 2.6 percent higher.
With lease rates relatively flat, “Retailers continue to move up to higher-quality locations, with tenants taking advantage of higher-traffic locations with visibility near Tucson’s major malls,” Furrier said.
“Former Blockbuster locations continue to turn, with users such as urgent care centers, restaurants, and mattress retailers benefiting from these corner sites. Medical clinics and urgent care are also striking deals at competitive lease rates in shopping centers as landlords continue to solve vacancy issues,” he added.
Although progress is welcome, economic uncertainty continues to haunt the market. Tucson’s retail real estate recovery is being held back by slow local job growth, shaky consumer confidence, credit rating downgrades and the Euro debt crisis. Politically, the nation is anxious about November’s presidential election
“We need to give credit to our local Mom and Pop tenants. They’re working hard, found a niche, but are constantly battling national and regional tenants,” said Darcy. “We need to support them as much as we can.”
“For the most part, the second quarter saw an uptick in activity among small tenant and local merchants, which had been missing in recent periods. High asking rents within anchor space has made it difficult to entice large national retailers to Tucson,” said McClure of CBRE.
“Retailers have recently become more flexible with their space requirements,” McClure added, “suggesting that the Tucson market is ripe with opportunity.”
Contact reporter Roger Yohem at email@example.com or (520) 295-4254.