In an environment marked by stability, metro Tucson added 3,300 jobs year-over-year through August. Educational/Health Services and Professional/Business Services accounted for 78.8% of the job growth, with unemployment improving significantly to 5.3% by September.
Market Overview
The Tucson office market’s overall vacancy improved slightly in the third quarter, ending at 12.6% on positive market-wide absorption of 33,293 square feet (sf). The year’s largest Tucson office lease was effected this quarter by Cushman & Wakefield | PICOR at 4650 N Oracle, where Comcast Cable will house 1,125 new-to-Tucson jobs in the 211,152-sf Tucson Galleria, repurposing previous retail space to office. While lease rates have remained generally flat, more desirable, better-located properties have been able to maintain occupancy and economics.
Sales activity was more robust, with five investment transactions in the quarter and five sales of property over 10,000 sf. The largest sale was Griffin Capital’s purchase from Aetna of the 100,273-sf fully-leased building at 3535 E Valencia for $216.41 per sf, with a leaseback to Aetna also completed. Cushman & Wakefield and Cushman & Wakefield | PICOR represented the seller.
Outlook
While office vacancy rates are similar to those seen three years earlier, positive gains across all commercial property sectors in the third quarter is a positive harbinger for Tucson. Sale of 1 South Church, Tucson’s tallest building, to a local investment group will be a strong start to fourth quarter activity. Both broker sentiment and consumer confidence are up, and while job growth is Tucson’s highest need, significant infusions of construction dollars are expected to be a boon. This includes the HomeGoods facility, Banner’s capital infusion into its hospital system, and any of the approved Pima County bond initiatives in November. Look for continued momentum across the spectrum of healthcare uses, particularly now that the two hospital system acquisitions are complete, Banner of University Medical Center and Tenet/Dignity of Carondelet Health Network.
