PICOR Connect | Trends in Commercial Real Estate

Restaurants & Medical Uses lead the Tucson Retail Charge Q1

Posted on Tue, May 03, 2016

Vacancy in the Tucson retail market remained at 6.6% in the first quarter, in line with the stability reported over a two-year span. Comparing year-over-year Q1 net absorption, the delta represented 139.0% more space absorbed in Q1 2016 than was lost in Q1 2015. 

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The top leases, highlighted in a table on the full report were led by Midtown Mercantile Merchants, a 29,211-square-foot (sf) C&W | PICOR transaction. Expansion of eateries, led by quick-service restaurants, remained the strongest market driver, with medical uses a close second. New openings included El Pollo Loco and Krispy Kreme near Broadway/ Craycroft, Taco Bell at Houghton/Old Vail, Chick-Fil-A at Kolb/Grant, and MOD Pizza and Smashburger in the northwest. By this writing, Charro Steak, Batch, and Elvira’s opened in downtown Tucson. In the medical retailing trend, C&W | PICOR leased the former Hollywood Video location at Broadway/Houghton to TMC One for clinic space.

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Grocery activity included the reopening of two Safeway/Albertson’s stores reclaimed from the Haggen’s bankruptcy: Broadway/Harrison and Speedway/Silverbell. Natural Grocers is under construction at River/ Craycroft, to be accompanied by a second Tucson Kneaders Bakery. Walmart’s expansion at Speedway/Kolb demonstrated the challenges of infill expansion and the post-recessionary trend of movement into higher density sites.

Nordstrom Rack opened its second Tucson store at Broadway/Wilmot in late April, and Dunkin Donuts was under construction on a pad at the northwest corner of Tanque Verde and Sabino Canyon. McAlister’s Deli and Starbucks were under construction on adjacent pads at First & Wetmore.

The forthcoming closure of three Sports Authority stores, part of the national liquidation, is symptomatic of challenges faced by mid-level retailers in a barbell market where high-end and discounters prevail.

Sales activity in Q1 included 24 sales, 13 of which traded hands over $1 million. At $34.6 million, quarterly sales volume was below the pace for the prior eight quarters, while the average sale price of $148.03 per sf was more similar to pricing seen in 2013 and 2014.

Economy

Preliminary BLS data reported that Metro Tucson added nearly 13,000 jobs year-over-year through February 2016, with total employment over 455,750 and an unemployment rate of 5.2% (which improved to 4.8% since publication of this report). These results demonstrate significant positive progress for the Tucson labor market. If preliminary figures hold, this level of employment would represent a record and the lowest rate of unemployment since April 2008.

Outlook

The forecast is slightly more optimistic than cautious, thanks to higher economic development activity and employment gains. Tucson City Council advancement of the Broadway alignment plan signals progress and removes uncertainty from this key gateway to downtown Tucson. The Tangerine Road widening has commenced in the northwest sector, and home builder activity is trending up.

Topics: Tucson, Commercial real estate, Investment property, Leasing, Retail