Tucson’s Q2 retail vacancy held steady at 6.2% amid a resurgence in demand for consumer goods, entertainment, and travel as vaccine availability and guidance opened the door for spending like it’s 2019. Summer midweek waitlists at restaurants have become a thing. With continued strength in class A space, class B and C properties saw improved absorption and declining vacancies. Among the sizzling regions in the retail market include the Central East submarket (Campbell Ave corridor, and the University area), Foothills submarket (Oracle Rd and Ina Rd), and a return to the Downtown submarket. Medical and service-based users have increased appetites for neighborhood-based locations, with competition between multiple clinic brands entering the Tucson market.
Construction has been largely limited to new and redevelopment sites, most quick serve restaurants (QSR) operators are expanding, including Salad and Go at Craycroft Rd and Speedway Blvd, the first of a likely ten units.
With favorable interest rates, exchange buyers, and heady demand, the investment market is on fire. Pandemic-proof businesses like food delivery and household consumables are among the most attractive categories for leased investments. Offerings of single-tenant NNN buildings move like hotcakes with multiple offers, even for vacant sites in premium locations. Market-wide cap rates trend in the 5.7-6.5% range, depending on credit, location, and term, with significant compression over a year earlier, as much as 75 to 100 bps.
In the lease market, rents are expected to remain steady until vacancy drops to the mid 5.0% range. Owners of high-quality centers with low vacancy have been able to push rates.
In Q2 2021, the Tucson metro area recorded nonfarm employment of 380,400 jobs. The unemployment rate improved dramatically from 8.3% in May 2020 to 6.8%, as the effects of the pandemic began to normalize. Median household income decreased by 11.9% compared to Q2 2020. Arizona’s April retail sales grew 45.5% year-over-year with housing permits up a full 71.0%. Single family home sales volume was up 12.0% year-over-year through June and the median sales price increased 25.1% for the same period.