PICOR Connect | Trends in Commercial Real Estate

When Will the Tide Turn for the Tucson Industrial Market?

Posted on Thu, Oct 18, 2012

Not long ago, tsunamis and commercial real estate were part and parcel of the same discussion. While no tidal waves--positive or negative--are expected to shake the Tucson industrial market, many wish to know: After bouncing along with only incremental change, when will the tide turn?

While job creation will be the primary catalyst, the housing market shows signs of continued stabilization, with positive downward trends in foreclosure notices and trustee’s sales. Median September 2012 sales were up 25% year over year.

Lease market

While new inquiries have dropped off in recent weeks, several spaces with long-term vacancies have leased, in a lease market still strongly favoring the tenant, while lacking health and significant momentum.

Overall asking rents were unchanged over Q2 2012, and may have bottomed out in some Tucson submarkets, but landlords remain aggressive. Tucson's marketwide vacancy was 11.6% on slightly positive absorption of approximately 45,000 sf.

Call centers represent the most active sector in the Tucson industrial area, with eight spaces leased year to date (YTD) of 25,000 square feet (sf) or more. Mining-related users are also active. Rents continue to drop in Nogales, at the Arizona/Sonora, Mexico border.

CLOSINGS LARGELY BY USERS

With lease rates down and cap rates up, Southern Arizona property owners have had little impetus to sell into a buyer’s market. That being said, money on the sidelines is poised for opportunity; limitations for purchasers include limited inventory and constraints related to financing and qualification. The limited investment activity is reflected in closings: Of the ten largest sales for the quarter, only one was an investor purchase. YTD user sales have outpaced investors 2:1, in contrast to 2011, where sales were evenly balanced between users and investors.

Bank owned and short sale activity remains moderately active, while land activity continues to be subpar.

outlook

With significant Tucson industrial projects in escrow, expect a stronger finish to 2012 both in terms of activity and absorption. The 100,000 sf American Tire Distributors regional facility in the Airport area is slated to open before year end, and two employers (Accelr8 and Integrated Technologies Group) have announced market entries, bringing welcome manufacturing and biotech jobs to Southern Arizona. The mining sector remains active and is expected to be a driver for occupancy and land sales in the near to mid term.

Again, no sea changes, but if positive absorption washes ashore as expected in the fourth quarter, Tucson's industrial market will continue on its way to recovery.

Click me

Click here for a map and glimpse of statistics in major industrial markets around the U. S., courtesy of Cushman & Wakefield.

For more information on the Tucson industrial market, please contact one of our market-leading specialists or visit our website to search properties and learn more about PICOR's industrial real estate services.

 

Data source: CoStar Group

Topics: Tucson, Industrial, Commercial real estate, Investment property, Absorption, Market trends, Vacancy, Lease rates, Warehouse, Leasing, Manufacturing