Industrial Update: Tucson 3Q Absorption Moves 2014 in the Black

With an improving national economic and employment picture slowly lifting all boats, the Arizona and Tucson employment rates followed suit; statewide employment was up 2.1% over a year ago. Residential inventory continued to stabilize and median sale prices gained 6.2% over prior year. Shared Services Center’s expansion announcement netting 200 new jobs made a positive statement about Tucson as a location to service western states.

LEASE MARKET

After several years void of significant prospects,  three large userswere active in the market, including two local expansions and one new employer. In addition, heavily improved R&D space began to move. Several well-capitalized medical marijuana grow houses with requirements between 18,000 and 40,000 sf were active in the market, thanks to softened local regulations allowing Tucson to compete for sales tax dollars with sites in Maricopa County.

Positive net absorption of 172,000 square feet (sf) marketwide erased the two previous negative quarters, bringing year-to-date absorption to a nominal, yet positive 49,000 sf. Accordingly, the vacancy rate improved from 11.6% mid-year to 11.0%, with positive absorption enjoyed across nearly all submarkets. Rents remained stable.

Continued slight improvement was led by active call center and back office requirements, the most notable, Shared Services Center, leased 60,405 sf in the Airport area, backfilling space previously vacated by Raytheon and announcing 200 net new jobs for the Tucson region.

SALE MARKET

With 1031 exchange activity up, sellers were buyers and trading activity increased, with inbound capital investment largely from southern California. All offerings with reasonable cap rates and credit found interest. The largest investment closing was 3434 E Kleindale, 37,490 sf at $26.62 per sf; on the user side, 4670 S Palo Verde sold at $94.16 per sf. The low end market remained active as the investor profile became more diversified.

OUTLOOK

Two buildings are under construction, FedEx Ground’s 210,000 sf facility and Freightliner’s 49,751 sf building. While only in two facilities, the construction footprint exceeds activity seen since 2009.

With the October opening of the expanded Port of Entry at Tucson’s neighboring U. S./Mexico border, wait times to enter the U. S. for trade and commerce have been shortened measurably.

Downtown Tucson’s vibe cannot be overstated, a harbinger for positive momentum community wide. The renaissance is in full swing, kick started by the opening of the Modern Streetcar posting higher than projected ridership and a rise in business openings.