East Valley, AZ Retail Market Report
Tempe, AZ
Market Overview
Tempe, located in Maricopa County, is a vibrant submarket known for its youthful energy, diverse cultural scene, and thriving economic environment. Home to Arizona State University (ASU), Tempe has a dynamic and academic atmosphere that attracts students, professionals, and visitors alike. Mill Avenue, a bustling street near ASU’s campus, is a popular destination with shops, restaurants, and lively nightlife options.
Market Performance
The vacancy rate in the Tempe retail submarket stands at 6.3%, reflecting a decrease in vacancies of 1.2% over the last 12 months. Throughout this timeframe, 120,000 square feet have been occupied, while an additional 18,000 square feet have been introduced to the market. Average rent for all retail property types is currently $24.00 per square foot, marking a 10.1% increase compared to a year ago. Over the past three years, there has been a cumulative rise of 25.8% in rental prices. The ongoing construction accounts for approximately 130,000 square feet, reflecting a 1.6% expansion of the overall inventory. In the preceding 12 months, there have been 18 sales
transactions with an average selling price of $191 per square foot. The estimated overall value for the submarket is $270 per square foot.
Over the past three years, a total of 95 sales have taken place, amounting to around $201 million. The market cap rate for Tempe currently stands at 6.2%, slightly below its trailing three-year average of 6.5%.
Tempe By The Numbers | Last 12 Months | Source: CoStar Group
- Vacancy Rate: 6.2%
- Rent Growth: 10.1%
- Deliveries SF: 28.6K
- Absorption SF: 117K
- Sales Volume: $55.1M
Red Mountain/Mesa, AZ
Market Overview
Mesa, situated in the rapidly expanding East Valley of Phoenix, is a swiftly growing suburb. The submarket’s appeal to residents lies in its comparatively affordable housing options and a growing range of amenities. This expansive submarket possesses the most extensive retail inventory among all of Phoenix’s submarkets, totaling 31.4 million square feet of existing space.
Market Performance
Space availability has consistently diminished in the recent expansion cycle due to robust tenant demand, resulting in tight market conditions. Despite the submarket’s vacancy rate being structurally higher than the overall market, it remains historically low by Red Mountain/Mesa standards at 6.8%. These factors have contributed to the most aggressive period of rent growth on record, with a notable 9.6% increase over the past 12 months. The limited construction activity has also played a role in supporting strong property performance. Since 2021, more retail space has been demolished than delivered, and additional removals are anticipated.
After experiencing a notable increase in investment activity in 2022, sales volume in 2023 reverted to levels more akin to the pre-pandemic average. The presence of elevated interest rates had a dampening effect on transactions involving buyers dependent on external financing. Consequently, private investors have assumed a more significant proportion of the buyer composition, and most deals involve less than $3 million.
Red Mountain/Mesa By The Numbers | Last 12 Months | Source: CoStar Group
- Vacancy Rate: 6.8%
- Rent Growth: 9.6%
- Deliveries SF: 76.8K
- Absorption SF: 319K
- Sales Volume: $176M
Chandler, AZ
Market Overview
In the prosperous and rapidly expanding Southeast Valley of Phoenix, Chandler has become a focal point for finance, technology, and professional services companies over the last decade. This transformation is exemplified by Intel’s significant workforce of around 12,000 employees in the region. The presence of these well-paying jobs has cultivated a robust consumer base, contributing to spending at local retailers. Moreover, Chandler is a highly educated population with dependable infrastructure. This draws in employers from various industries and laying the foundation for sustained growth in purchasing power.
Market Performance
The strong underlying factors driving demand and limited construction activity have led to a significant reduction in available space, reaching one of the lowest levels on record. The vacancy rate, which was in the low-6% range before the pandemic, has now dropped to 4.9% and is anticipated to stay constrained in the near future. This limited availability for expansion may hinder leasing activity as growing retailers face challenges in finding suitable sites, potentially leading some to consider constructing their own locations. Amid a shortage of quality space, landlords currently hold significant pricing power.
The average asking rent has surged by 9.7% in the past 12 months, tripling the pre-COVID-19 five-year average of 3%. Rent growth is expected to align with the historical average, especially as the strength of the consumer is closely monitored. Nevertheless, with no ongoing construction projects, the fundamental balance between supply and demand is likely to remain intact, even in the event of a slowdown.
Chandler By The Numbers | Last 12 Months | Source: CoStar Group
- Vacancy Rate: 4.9%
- Rent Growth: 9.7%
- Deliveries SF: 18K
- Absorption SF: 167K
- Sales Volume: $73.2M
Gilbert, AZ
Market Overview
Gilbert, AZ, situated in the rapidly expanding and prosperous East Valley of Phoenix, is an affluent suburb experiencing substantial growth. The area’s population is well-educated, drawing the attention of nationally recognized employers in industries such as health, technology, finance, and advanced manufacturing. Notable companies like Deloitte, Northrop Grumman, GoDaddy, Morgan Stanley, and Isagenix have established a presence in Gilbert, contributing to a community of high-income consumers who, in turn, support the local retailers in the area.
Market Performance
The strong underlying factors driving demand and limited construction activity have led to a significant reduction in available space, reaching one of the lowest levels on record. The vacancy rate, which was in the low-6% range before the pandemic, has now dropped to 4.9% and is anticipated to stay constrained in the near future. This limited availability for expansion may hinder leasing activity as growing retailers face challenges in finding suitable sites, potentially leading some to consider constructing their own locations. Amid a shortage of quality space, landlords currently hold significant pricing power.
The average asking rent has surged by 9.7% in the past 12 months, tripling the pre-COVID-19 five-year average of 3%. Looking ahead, expectations suggest a moderation in rent growth to a level more in line with the historical average, especially as the strength of the consumer is closely monitored. Nevertheless, with no ongoing construction projects, the fundamental balance between supply and demand is likely to remain intact.
Gilbert By The Numbers | Last 12 Months | Source: CoStar Group
- Vacancy Rate: 6.8%
- Rent Growth: 9.6%
- Deliveries SF: 76.8K
- Absorption SF: 319K
- Sales Volume: $176M
