Phoenix job growth spurs shopping center bonanza

LAS VEGAS (Reuters) - Five years ago, when retail developer Macerich Co. bought Westcor, an owner of malls and shopping centers in Arizona, Macerich was pretty much alone in the desert.

Now, Arizona is getting crowded with malls and outdoor shopping centers, driven by phenomenal job growth and a housing boom, and there are worries and some conflicting evidence about whether it all amounts to simply too much retail space.

David Scholl, senior vice president of development for Westcor, told Reuters in an interview that Macerich's activity in Arizona is driven by customers' desire to be there.

"It's really more a response to demand," he said. "When they think Arizona they think Westcor will take care of them."

He was at the International Council of Shopping Centers' conference in Las Vegas, where 45,000 retailers, developers, mall owners, brokers, bankers, investors and analysts meet annually to do deals and gauge the state of the industry.

Macerich owns 10 of the Phoenix area's 11 malls and has plans for five more. Arizona accounts for 13 of its 73 malls, and all nine of the ground-up developments in its pipeline. Six of Macerich's top-20 best-producing properties are in Arizona.

The Santa Monica, California-based company also owns retail space in California, Virginia, Colorado and the Northeast.

DESERT BLOOM

New York-based The Related Cos. is building a complex in northern Phoenix called CityNorth, with hotels, 1.25 million square feet of retail space, 1,200 to 1,500 residential units and 450,000 square feet of office space.

General Growth Properties, the second-largest U.S. mall owner, also plans to expand in the state, as do smaller family-owned retail developers such as Sierra Sun Properties.

But Arizona, and especially the Phoenix area, has seen its housing market go limp in the past year or so, as investors who snapped up houses only to resell them at escalating prices fled the market, leaving a glut of homes for sale.

Scholl said it was difficult to gauge the impact on the retail industry there.

"I think there's a little bit of danger," Scholl said. "One of the fears I have is that a lot of people are building retail as an amenity as opposed to economic demand for retail space and that could create a glut in certain segments of our market. It's supply driven as opposed to demand driven."

In the 12 months to March, Phoenix saw its retail vacancy rate climb 1.2 percentage points to 5.8 percent, ranking it among the worst-performing retail markets in the country, according to real estate research firm Marcus & Millichap.

Yet that may prove a blip, as the real estate research firm also shows Phoenix experiencing some of the strongest job growth in the nation, adding 83,867 jobs in the first quarter.

Plus, Marcus & Millichap ranks Phoenix in the top 15 markets for population and job growth in the next five years.