The Valley's retail market just capped off its worst year in nearly two decades, and the East Valley suffered the most, according to the latest quarterly report by commercial real estate brokerage CB Richard Ellis.
The Valley ended 2009 with 1.1 million square feet of vacated retail space, marking the first full year of lost retail space since tracking of the market started in 1990. The average lease rate for existing retail centers has dropped by more than $2 over the past 12 months, from $19.68 per square foot at the end of 2008 to $17.33 at the end of 2009.
"The East Valley did probably the poorest out of all (regions of the Valley)," said Rick Murphy, CB Richard Ellis senior vice president. "Total year to date just in the East Valley was 983,000 square feet (of vacated retail space). That's pretty bad."
Because of all the newer power centers across the south East Valley, the region had more to lose when the economy soured, he said.
"You had a lot of Circuit City stores that (shut down) in the East Valley," Murphy said. "Down in Queen Creek, Vestar's (Queen Creek Marketplace) had four mini (retail boxes) that went out, so that hurt. And down in (SanTan Village mall) they had some boxes that went out."
Gilbert Gateway Towne Center lost Linens 'n Things, while other retailers vacated space near Fiesta Mall in Mesa.
"There's just been a lot of retailers struggling and a lot of bankruptcies happening," Murphy said.
Availability of big-box retail space has more than doubled in the past two years. At the end of the year, there were 288 retail spaces totaling 8.3 million square feet across the Valley, compared with 132 spaces totaling 3.9 million square feet at the end of 2007.
"It will get absorbed over time," Murphy said. "The good news is, metrowide, we're going to be building less than 1 million square feet of retail (in 2010), and we haven't done that small since 1992."
The vacancy rate among retail centers rose for the 11th consecutive quarter to end the year at 11.4 percent, up from 7.9 percent a year ago.
As some retailers closed, others expanded across the region, including dollar stores, Goodwill, Forever 21 and Hobby Lobby, Murphy said.
"There's still a lot of attractive existing space out there that is available in anchor centers in great locations, and that stuff will get leased up first," he said. "You'll see more of those retailers like the dollar stores, Big Lots and Goodwill, so that will change a little bit of the mix. The stronger retailers are going to survive and thrive."
The East Valley's retail market should improve faster than the rest of the Valley, Murphy said.
"It has the employment, it has the infrastructure with the freeway system, and the housing has done better out there," he said. "The East Valley has a lot going for it."
Reports of improved holiday sales from retailers mean that the retail market will be on its way to recovering this year, said Michelle Ahlmer, executive director of the Arizona Retailers Association.
"I don't think we're going to come bounding back, but we're on the upward trail," she said. "Retailers, especially the independent retailers, got hit really hard, and if they made it through this Christmas season, if they manage their inventory well and they do what they need to attract customers and traffic, this year is going to be a much better year."
National retailers are looking to expand in growth areas, and Arizona is still considered one, Ahlmer said.
"There's national retailers that are looking to do different formats ... maybe they want to scale down and appeal to more of the convenience of a power center," she said. "There will definitely be some changes, and it will be interesting to see."