With Tucson and state-wide post-recession job recovery lagging the nation, the local office market continued to rely on silver linings. Residential sales volume and median prices ended the year higher (14.0% and 7.1%, respectively), as positive recovery continued in the housing market.
The overall Tucson office vacancy rate ended 2013 at 12.2%, familiar year-end territory for the fourth consecutive year. Interest and activity were up slightly in the fourth quarter as tenants shopped the market, and thanks to tenacious landlords, a high percentage renewed in place. Most moves were lateral with some continued downsizing for efficiency.
Tenants continued to ‘trade up’ to higher quality space, leaving more obsolete space and a dearth of pressure on rents.
Medical and associated uses continued to shine in an uncertain and difficult environment, but with irrefutable increased demand and activity. The Tucson pediatric and adolescent behavioral health market was served by NYSE-listed Universal Health Services’ acquisition of Palo Verde Hospital from Tucson Medical Center, a sale facilitated by our firm.
The fourth quarter purchase activity increased in the market. Seven of the ten largest buildings sold in the quarter were to users in service and technology fields, showing some opportunity to own real estate while prices remain favorable to business and investors.
The expectation in 2014 is for mild improvement across the market. Improved investor sentiment in the stock market will have a positive effect on the real estate market and home builder activity should increase. Job creation, however, remains the brass ring to reverse Tucson’s office market doldrums. The broader community must also adopt a ‘yes’ attitude to business and development for meaningful change to occur.
The state-wide economic forecast calls for growth to accelerate in 2014 and 2015 and outpace the U.S. rate of growth. Freer mobility in recovering and healthy markets will enable inbound migration to return to pre-recession levels. Between Tucson’s number one ranked NCAA basketball team and a climate envied by those in the path of the Polar Vortex, the reasons to locate in Tucson continue to mount.
Sources: University of Arizona Eller College, CoStar Group, Tucson Association of Realtors, Real Estate Daily News
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