PICOR Connect | Trends in Commercial Real Estate

Tucson Apartment Market Gains Ground Q3

Posted on Tue, Dec 15, 2015

Market Overview

In a show of local market strength, Tucson’s multifamily sector reported positive growth in all key statistical categories in the third quarter of 2015. Absorption increased by 623 units during this time period as students and winter visitors returned to the region. For the trailing twelve months, Metropolitan Tucson experienced a 740-unit increase in occupancy. The net rents for the Tucson market increased $9 per unit to an average rent of $651 per unit and $0.89 per sf (without utilities) in Metropolitan Tucson. Of note, this represented the largest rental gain in a single quarter since 2006. Gross rents have increased $15 per unit (2.36%) over the last year with the largest gross rental gain occurring in the Tucson Mountain Foothills ($44 per unit).  The greatest one-year decline was from the South Central Tucson market ($21 per unit). The leading indicators of absorption and net rents typically signal a strengthening market. The vacancy rate for conventionally-operated complexes improved 0.72% to an average of an 8.17% vacancy. Seasonal improvement is predicted most third quarters but the meaningful gains in each of these sectors is a true step in the right direction.  The sentiment among management companies as a whole is more positive on the growth and immediate future of the multi-family market.  As Tucson continues to add jobs in the marketplace, we will continue to see positive results in all the main sectors.

PICOR_Tucson_Apartment_Market_2015.jpg

Outlook

The investment market remains tremendously strong and active. Investors are continuing to flock to Tucson in hope of securing properties at higher cap rates before the anticipated rise in interest rates.  The spread (difference between interest rate vs. cap rate) seems to be an issue for many investors looking to acquire “C” class property in the market.  Many of the local lenders have already raised interest rates, and the gap continues to narrow.  Many investors see these next few months as the right window to buy or sell before an anticipated jump in rates.  Lenders have challenging underwriting requirements on properties that are not well located or with unstable balance sheets. Properties that are priced correctly continue to enjoy short durations on the market. As an example, Cushman & Wakefield | PICOR marketed a 38-unit complex called Palm Garden and received eight offers within the first two weeks.  The market should remain vibrant with many owners looking to sell before year end.  We welcome your inquiries about all on and off-market opportunities in Tucson.

View Full Report

Topics: Tucson, Commercial real estate, Investment property, Vacancy, Apartments, Multifamily