Scottsdale, Tempe, & Mesa Retail Market Report
Scottsdale, AZ Retail Market Report
Submarket Overview
Central Scottsdale’s appeal as a destination for living, working, and tourism is highlighted by a lively mix of business and residential growth. High-end neighborhoods such as McCormick Ranch and Gainey Ranch contribute to the area’s affluent population. Moreover, luxury hotels and corporate headquarters draw daytime visitors who contribute to spending at upscale eateries, shops, and malls like Fashion Square Mall. Central Scottsdale also enjoys a high level of educational achievement, which boosts its purchasing power potential.
By The Numbers | Past 12 Months | Source: CoStar Group
- Vacancy Rate: 3.5%
- Rent Growth: 8.2%
- Deliveries in SF: 19.8K
- Absorption in SF: -114K
- Sales Volume: $116M
Submarket Performance
About 68,000 square feet of new retail space have been added in the last three years, increasing the total inventory by 0.5%. Most of these new additions are concentrated along the Loop 101 corridor, with the recent notable addition being The Block at Pima Center, a 38,000-square-foot neighborhood center near Via de Ventura and the Loop 101 freeway. With a vacancy rate of 3.5%, which is lower than it has been in at least 15 years and significantly below the overall Phoenix market rate of 4.7%, the area is seeing historically low levels of available retail space. This lack of supply-side pressure has contributed significantly to the consistent improvement in property performance over the past decade.
Central Scottsdale is recognized as one of the top retail districts in the Valley, commanding the highest rents in the market. In the past year, average rental rates have risen by 8.2% to $36.00 per square foot, representing a premium of more than 40% over the metro area as a whole. Despite these higher costs, leasing activity remains strong as businesses are eager to access the area’s affluent consumer base.
Tempe, AZ Retail Market Report
Submarket Overview
The presence of a significant number of students and young professionals has transformed Tempe into one of the liveliest and most dynamic regions in metropolitan Phoenix. Tempe is anchored by Arizona State University, the largest university in the United States, with over 57,000 students enrolled at the main campus as of fall 2023. This large student population, combined with a desirable quality of life, contributes to a robust workforce. Favorable demographics stimulate consumer spending at local businesses and contribute to the suburb’s positive economic prospects in the long run.
By The Numbers | Past 12 Months | Source: CoStar Group
- Vacancy Rate: 6.0%
- Rent Growth: 7.3%
- Deliveries in SF: 26.2K
- Absorption in SF: 101K
- Sales Volume: $75.3M
Submarket Performance
The vacancy rate in the Tempe retail submarket stands at 6.0%. There’s limited pressure from new supply, with most recent additions being ground-floor retail spaces in multifamily buildings. Apartment developers have been particularly active, and Tempe has been a significant beneficiary of the region’s substantial construction activity in recent years. One notable project underway is the construction of a new five-story Class A office and academic building near Mill Avenue and 10th Street, which includes about 17,600 square feet of ground-floor retail and restaurant space. This project is scheduled to be completed in shell condition by summer 2024. The average asking rent stands at $24.00 per square foot, offering a discount compared to Phoenix overall. Although, premium locations near Downtown Tempe and ASU can command higher rents. Rent growth reached a record high in 2023 and is expected to moderate over the coming year.
Investment activity in Tempe has stayed consistent with recent historical levels, with both private and institutional investors opting to invest in the city. In the last year, approximately $75.3 million worth of retail assets traded hands, which is in line with the average of $73.3 million per year over the past five years.
Mesa, AZ Retail Market Report
Submarket Overview
Mesa, situated in Phoenix’s East Valley, is experiencing rapid growth. Its affordability in housing and expanding amenities attract residents to the area. This extensive submarket covers a large area and holds the largest amount of retail space among all of Phoenix’s submarkets, totaling 31.4 million square feet of existing space.
By The Numbers | Past 12 Months | Source: CoStar Group
- Vacancy Rate: 7.3%
- Rent Growth: 8.7%
- Deliveries in SF: 67.5K
- Absorption in SF: 1.6K
- Sales Volume: $193M
Submarket Performance
During the recent expansion period, space availability has continuously decreased due to strong tenant demand, resulting in tight market conditions. Although the submarket’s vacancy rate is structurally higher than the overall market, it remains historically low compared to Mesa standards at 7.3%. These factors contributed to the most significant period of rent growth on record, with an increase of 8.7% over the past year.
The limited construction activity has also played a role in maintaining strong property performance. Since 2021, more retail space has been demolished than built, and additional removals are anticipated. For instance, Verde Investments started demolishing Fiesta Mall during the summer, with plans to redevelop it into a mixed-use project featuring housing and commercial options.
