PICOR Connect | Trends in Commercial Real Estate

It's been a couple of weeks since we updated you on "business as unusual" at Cushman & Wakefield | PICOR. With daily changes in guidance from every level of government and deeper understanding of our responsibilities to support health at the human, property, and community levels, we have continued to flex, too.

When the going gets tough, the tough get flexible! Our resilient team of Tucson commercial brokers, property managers, and support staff are weathering these strange days with good humor and a service-first mentality.

"We face unprecedented and uncertain times because of COVID-19. However, the Chamber has been here for 123 years, and we intend to be here to lead businesses for another century. For this reason, based on available information, we emphatically believe it is in the best interests of the community, our restaurants and the employees that work in these establishments, to modify their operations to takeout and delivery only. In a meeting led by Mayor Regina Romero, including Vice-Mayor Paul Cunningham, our members, restaurateurs, Visit Tucson and the Pima County Health Department, this recommendation was strongly advocated for by the Chamber. Restaurants are regulated on having strong health and safety standards and they have been amplified during this crisis. Mayor Romero has called a Local Emergency to go in effect tonight at 8:00 p.m., to maintain public health. Dining rooms in restaurants, bars and food courts will be closed. Mayor Romero stated, “My top priority, above all else, is to protect public health. This is a painful decision that I do not take lightly. Our restaurants and small businesses need clear, uniform direction, and this order provides them exactly that.”

The retail sector has always been a dynamic arena of flux and of change. As our society and our culture has evolved and progressed, so has retail. The process of selling and the delivery of consumer goods has throughout history always progressed in order to keep pace with changes in transportation, technology, demographic shifts, and the resultant changes in consumer preferences. Today’s media is full of news of bankruptcies and store closures while simultaneously reporting year over year increased retail sales. While this may seem like a daunting and dangerous business environment this is business as usual for retailers and the industries that serve them. Retailing has always been a business and science that is constantly evolving. The current state of retailing is another evolution and stage of growth that will, inevitably, lead to the next stage of growth.

With thanks for broad individual and community support, the PICOR Charitable Foundation (“PCF”) raised and donated nearly $79,000 in its 2019 cycle, 10% more than the previous high mark. With all event costs underwritten by in-kind community partners and PICOR corporate funds, 100% of the funds raised through the 25^th Annual Pancake Feed were granted to Tucson-area youth charities. PCF is especially grateful for its capstone contributor, Burton Family Foundation, who doubled their commitment in 2019.

On Sunday, November 17, 2019, we lost our brother, partner, friend, and teammate Russ Hall. Mercifully, his heart stopped quickly at the end of a day well lived in a place he loved.  Not only was he a giant in the business and a perennial top producer, Russ shared everything he had, and his heart worked overtime every day. Everything has its limits, and Russ gave of himself until it just gave out. We simply weren't ready... Ten days earlier, when we asked our team what they were grateful for, Russ replied with this:

"Am blessed to walk in to an office everyday where you consider all 50 people among your best friends.  Personally so thankful for my faith, survival of my little family, Health and all the wonderful blessings we hopefully never take for granted." 

Investment property value is a function of net operating income, and controlling expenses is impactful to any investor’s returns.  With a managed portfolio of about three million square feet (sf), Cushman & Wakefield | PICOR tracks operating costs by type of property and over time, identifying trends and opportunities.

Like Forrest Gump and Jenny, or peas and carrots, commercial real estate and the economy enjoy a special relationship. Thus at Cushman & Wakefield | PICOR, we introduce our quarterly commercial real estate update with an economic backdrop to inform our perspective.

The Tucson industrial market remained strong at midyear, as evidenced by our primary metric: Vacancy rate. Once again, vacancy has ticked-down, this time to 5.1%. Echoing the comments last quarter, Tucson is experiencing a “plateau effect” in the industrial sector in that the dynamic run-up in absorption slowed as the market leveled off at a highly-occupied equilibrium. 

Smaller scale manufacturing operations (1,000-5,000 SF) seem to be opening up shop and gaining momentum faster than ever. Why is this happening? I think the cost of manufacturing machines has come down and because of the strong economy, entrepreneurs have the spirit and the capital to start a manufacturing operation or grow their business with existing cash or lines of credit. Also, the cost of distribution continues to become more competitive.