The Greater Phoenix retail market vacancy level hit an historic low 4.8% at the end of June, reflecting strong tenant demand, according to a report released by Colliers in Arizona.

Data from Affinity Solutions indicates Phoenix has experienced a 16.5% increase in all consumer spending since January 2020.

The Colliers in Arizona press release reports that during the second quarter retail vacancy fell 40 basis points, which was a 130 basis point decrease year-over-year. This marked the 12th consecutive quarter that vacancy has decreased.

Eight of nine geographic submarkets in the city posted retail vacancy decreases year-over-year. Downtown was the only submarket with a rise in vacancy.

The lowest vacancy is found in the West Valley, falling to just 1.8% during the second quarter. Scottsdale posted the second lowest vacancy at just 3.6%.

The market is less than 500,0000 square feet from topping last year’s absorption level.

New deals larger than 10,000 square feet rose 17% from the first quarter and were up 22% year-over-year.

The largest new lease signed during second quarter was PickleMall’s commitment to 104,000 square feet at Arizona Mills Mall, at 5000 S. Arizona Mills Circle, in Tempe.

The second largest lease involved behavioral health group Village Mentors signing a lease for 31,550 square feet at Alta Mesa Village near Brown and Recker roads in Mesa.

Strong population growth has driven demand for space and a rise in construction activity. The market posted new space totaling 700,000 square feet during first quarter, and the amount of space currently underway is 1.47 million square feet.

New projects underway are heavily located in the East and West Valley submarket clusters, making up more than 75% of product under construction. Prasada North, which consists of nearly 300,000 square feet of anchor space, is expected to deliver in early 2024.

In the East Valley, Hudson Station in Queen Creek is expected to also be completed in early 2024.

Rental rates in the Phoenix retail market continue to grow, ending the second quarter at an average $16.12 per square foot.

The largest growth was experienced in the West Valley, posting a rise of 6.13% and ending at $16.61 per square foot. Year-over-year, the North Scottsdale cluster had the largest increase, jumping 10.4% to $23.39 per square foot.

Scottsdale submarket maintains the highest average rental rates, posting $25.80 average rates at the mid-year point.

Decreased vacancy is expected to continue placing upward presure on rental rates throughout the remainder of 2023.

Unlike other commercial real estate sectors, Retail Investment sales during second quarter saw a 64% rise in transaction volume, ending the period at $293 million.

The largest bulk portfolio sale of the quarter was a double-escrow transaction involving seven EoS properties in Arizona and Florida totaling $94 million. Four of the five properties in Metro Phoenix were former grocery stores being converted into gyms.

During mid-June, Starwood Capital Group sold Arcadia Towne Center to Whitestone REIT for $25.3 million.