PRINT THIS STORY:

CHANGE TEXT SIZE:

DESERT BLOOM

National retailers help Tucson emerge from Phoenix’s shadow

BY DONNA MITCHELL

Residents of Tucson, Ariz., are getting ever more opportunities to shop at home rather than trek to Phoenix or Scottsdale, now that several local shopping centers are either open or under way.

In short, Tucson is coming of age, sources say. Ringed by five mountain ranges, the desert city attracts a steady stream of new residents looking for an active outdoor lifestyle and jobs in its flourishing defense, cultural, technology and educational sectors. The current population is about 900,000, and real estate experts expect that to reach 1 million by 2007. Timothy J. Prouty, a managing director at the CB Richard Ellis Tucson office, calls 1 million “a magic number for retailers, developers and investors.” Local employment rose 2 percent last year, even as personal bankruptcy filings continue to fall, says CB Richard Ellis.

Average household income was $33,255 a year in 1990, according to the 2000 census. Claritas, a San Diego-based market research firm, estimates that Tucson’s household income will average $45,104 this year and rise to $50,278 by 2010. To serve this growing and increasingly affluent population, local officials, development firms and retailers are beginning to work some magic of their own, with new developments all over the city. Five years ago there was some 20.9 million square feet of retail gross area in Tucson and its suburbs, according to the Tucson Department of Urban Planning and Design. That has grown to 23.4 million square feet today and could reach 24 million square feet by year-end, says Marcus & Millichap.

Some of that is long overdue, local developers say. The amount of regional mall development in Tucson over the past 20 years has been meager, and the current malls are all clustered in the north-central to northwest areas, toward Phoenix, says Robert L. Hoffman, a senior partner at Larkin Hoffman Daly & Lindgren, a real estate law firm in Minneapolis. Hoffman, who spends several months a year in Tucson, is consulting on a large mixed-use project called the Passages of Tucson. The project will get a lot of traffic from Tucson’s only freeway, Interstate 10, Hoffman says.

In November 2003 Westcor, a subsidiary of The Macerich Co., opened La Encantada, in Tucson’s north-central area. Tenants include the city’s first Anthropologie and Crate & Barrel, as well as a L’Occitane, a Talbots and a Williams-Sonoma. This open-air specialty center has been helping to stem the retail pilgrimage to Phoenix and Scottsdale.

Westcor, which owns Scottsdale (Ariz.) Fashion Square, has seen first-hand the magnetism Scottsdale has for Tucson residents, says Tracey P. Gotsis, SCMD, Westcor’s senior vice president of development. Resorts and spas on the outskirts of Tucson were shuttling shoppers 120 miles north to Scottsdale Fashion Square. Since La Encantada opened within a few miles of those resorts, Gotsis says, they are now offering car service to the newer center.

Meanwhile, Tucson has become a shopping mecca in its own right, as Mexican shoppers from across the border come to account for about 35 percent of purchases, says Gotsis.

Passages Development, an affiliate of Burnsville, Minn.-based Hoffman Development Group, which is owned by Hoffman’s family, has bought up more than 300 acres of land in Tucson’s southeast section as a site for Passages of Tucson.

The project will be a cluster of eight mixed-use districts called villages, containing retail, entertainment and residential components.

Each will feature a particular merchandise mix — housewares and furnishings, adventure and outdoor activities, recreational motor vehicles, for instance — plus restaurants and residences. The plans also call for an upscale, 600,000-square-foot lifestyle center portion called the Shops at Passages.

Passages of Tucson is designed to make life easier for busy shoppers who don’t want to hit 10 different stores in search of a sofa, say.

“The consumer market is no longer a mass market,” said Hoffman. “No one has time anymore.”

There is also a major public-private effort to revitalize the city’s center by 2013 under a program called Rio Nuevo, which sources say will cost at least $824 million. Like many Western U.S. cities, Tucson has spread outwards rather than upwards. Rio Nuevo will create a University of Arizona Science Center as well as sports, arts and cultural venues. Tucson officials also hope to see about 2,000 residential units built downtown by 2007, says Randy Emerson, Rio Nuevo’s director of development.

Retail space will represent a small portion of Rio Nuevo in the near term; most of it will comprise street-level neighborhood and specialty stores, says Emerson. But there is also room for a grocery-anchored neighborhood center and a lifestyle and specialty retail center, though at press time the plans for these were in the preliminary stages.

A good deal of the city’s retail development is following the boom of single-family houses along I-10, which cuts from the city’s northwest corner to the southeast, says Dale Webber, a senior associate in Marcus & Millichap’s Tucson office.

About five neighborhood centers are to open around the city by year-end. Wal-Mart says it plans to open a Wal-Mart Neighborhood Market this year, the first of several it is bringing to the city. This means competitive pressure for two grocery operators: Basha’s, an Arizona chain of about 140 supermarkets, and Boulder, Colo.-based Sunflower Market, which operates farmers’ market-style stores.

Meanwhile, landlords are sprucing up the city’s existing malls. Among these is the 1.2 million-square-foot El Con Shopping Center, built in 1962 and last updated in 1996. Its owners are adding an open-air power center component, says Prouty. Over the past two years, Target and Home Depot have joined existing anchors JCPenney and Robinsons-May. The owners say they plan to add several major tenants as junior anchors, though they have yet to name any.

The city’s power centers are becoming premium real estate by adding national retailers, says Webber. In 2003 Kohl’s and Wal-Mart built units at the Arizona Pavilions, a power center just east of Interstate 10, he says, and several junior anchors are expected to follow.

Analysts attribute recent retail rent increases to the newer developments in the more affluent areas of Tucson. According to CB Richard Ellis, asking rents averaged $15.45 per square foot at the end of last year, up from just below $14 per square foot the year before. Rents on new construction range from $24 per square foot to about $30 per square foot, Webber says.

But as Tucson’s retail market matures, the city needs to play catch-up in other areas, sources say. New residents want a more extensive mass transit system, Webber says, and local officials are seeking additional transportation funding.

“The airport is small,” said Gotsis. “That is one thing that the city of Tucson will have to address, if it wants to grow up.”