While not enjoying job recovery on pace with the national average, 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 industrial market enjoyed strong positive net absorption totaling 412,970 square feet (sf) in the third quarter, reducing vacancy to 9.4%, the first return to single digits and the lowest level recorded since 2008. Year-to-date absorption totaled 758,853 sf through September. Two 100%-occupied buildings totaling 270,000 sf were delivered in Q3: the 210,000-sf FedEx Ground facility and a 60,000-sf Ventana Medical/Roche expansion contributing to absorption. Walls tilted for HomeGoods’ 800,000-sf distribution center, with a 2016 completion date.
Activity was somewhat brisk in Q3, though with a few exceptions, smaller leases were dominant. The mining sector reported continued consolidation while shifts in hospital ownership and medical space utilization created some vacancies in records storage space.
Investment property remained in high demand, with few opportunities for buyers to place funds in the Tucson industrial market, as sellers continued to wait for improvement in values to sell. Five investment transactions totaling 210,305 sf sold for an average price of $62.69 per sf.
Outlook
Continued positive gains in occupancy could create pressure on lease rates in the coming quarters if the trend sustains. 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 which includes the HomeGoods facility, Banner’s capital infusion into its hospital system, and any of the approved Pima County bond initiatives in November. Expect continued slow recovery in the industrial arena, as the main drivers (University of Arizona, Raytheon, DMAFB, homebuilding, and copper) look for better times.
