Although not yet springtime by the calendar, early March in the desert indeed feels like winter is far behind us. As with the changing seasons, hope springs eternal that the Tucson industrial market has joined other commercial real estate sectors in a deliberate climb back to health. Current activity reported by PICOR’s industrial team–which lists approximately 43% of Tucson industrial space for lease–is up measurably across the board.
In fact, yesterday’s headline in Inside Tucson Business reads “Small business leases trend up.” Activity in the small business sector is a welcome harbinger of economic recovery.
In 2011, Tucson’s industrial real estate scene experienced a broad spectrum of high and low notes. On the positive side, a mid-year flurry of lease activity, not seen since the ‘sunnier days’ of 2006/2007 included: Bruker – 45,000 sf lease, AFNI – 49,000 sf lease, C-3 – 66,000 sf lease, Gerry Brown – 110,000 sf purchase/lease, Southwest Fiberglass – 53,000 sf purchase, B/E Aerospace – 35,000 sf expansion, Gianna Group – 31,000 sf purchase.
In addition, sales activity was up, with 62 arms length sales in the market.
From a negative perspective, 2011 industrial building sales averaged $45 per sf and saw a significantly higher ratio of sales under $20 per sf than in previous years (11.3% of all industrial sales in 2011 compared to 1.3% of sales in this category between 2005-2010). Furthermore, a number of significant buildings were vacated due to corporate consolidations.
Themes to follow for the remainder of 2012
2009 and 2010 distress was centered around the residential real estate sector, with home builders, construction, finance, residential brokerage, and title companies all suffering. 2011 saw distress shift to the hospitality sector (hotels and restaurants) and service businesses, more specifically independent service stations. The question is, what industries will be under the most stress in 2012? I believe the service industry will continue to struggle as discretionary income lags overall economic growth. Service stations will see continued competitive pressures with Quik Trip and Circle K aggressively expanding.
I believe we will see the construction industry emerge from distress and experience growth this year. The survivors will benefit from the changing tide in the economy and pent up demand for renovations and improvements.
Opportunity from adversity
As mentioned, corporate consolidations opened up several large Tucson industrial distribution and manufacturing buildings, including:
- Pella 264,000sf
- Sam Levitz 130,000
- Solon 100,000
- Kruger 245,000
- Airport hangars 576,000
These large-box availabilities present immediate space options for major new employers or expansions in our market. Capitalizing on these carrots to draw new employment to Tucson is high on the mind of all involved with economic development efforts for the good of the region.
While it is unknown how the presidential election will impact commercial real estate, you can expect voter and business sentiment to be a factor in the economy as we approach elections and year end 2012. Closer to home, the politics behind Rosemont Copper‘s proposed mine will impact the industrial market. If Rosemont were to be green-lighted, the industrial sector in Tucson would see a marked and immediate boon through indirect support and service jobs in the region.
Brandon Rodgers, CCIM is an industrial property specialist with PICOR, handling investment and user sales as well as tenant and landlord representation in leasing. His current emphasis is on dispossessions of bank REO assets, and he has averaged 64 transactions per year for the past five years. On the boards of both Southern AZ CCIM and the Pima County Real Estate Research Council, Brandon brings experience from past work with CBRE and NAI Norris Beggs & Simpson.