Tucson Office Market: Downtown and Medical Uses Light the Way

Arizona job growth is outpacing the national rate, as the state recovers. Improvement in job gains is dominant in the Phoenix metropolitan area, with only 1,300 net new jobs in the Tucson region since July 2012. The housing recovery statewide has positively impacted construction jobs in both Phoenix and Tucson, but permits remain low, relative to historic norms.

Year-over-year housing metrics are trending up across the board, with monthly progress mixed. Conventional lending is recovering, and inventory is below the balance point at 3.5 months. Finished lot supply is scarce.

lease market

Marketwide vacancy slipped slightly to 12.3% from the second quarter to the third, and remains stubbornly in the same range for three full years. The East and Northwest submarkets suffer the highest vacancy at 23.2% and 22.5% respectively, with the healthiest areas of significant inventory being North/Oro Valley at 9.7%, Foothills at 8.7% and Downtown/CBD at 9.3%.

Downtown remains a bright spot of activity, with CyraCom, one of the nation’s fastest growing firms, opening a new business development office in the redeveloping city core.

Look for continued momentum in the medical market. We see growth and activity in public health, community and behavioral health clinics as well as expansion of on-campus operating room space occurring at Northwest Hospital, on the heels of Tucson Medical Center’s West Pavilion opening.

investment activity

Fewer closings occurred in the third quarter, with three buildings of 15,000 square feet (sf) or more being investment purchases, and a higher number of small transactions in user building sales. Pricing continues to decline significantly due to lack of demand for user buildings under 20,000 sf.


Continued multi-use investment along the Modern Streetcar line will be good for the University and downtown regions, as we look toward ridership and increased entertainment and events this time next year.

The availability of the Muscular Dystrophy Association (MDA) corporate headquarters is an opportunity to attract a quality employer to the Tucson area, at which time 75 of MDA’s employees will be relocated within the region.

The statewide economic forecast calls for modest growth for the balance of the year, accelerating in 2014 and 2015 and outpacing the nation’s rate of growth. Personal income growth fueled by predicted job gains is also expected to accelerate over the same period, having a positive impact on retail sales.

Sources:  University of Arizona Eller College, CoStar Group, Tucson Association of Realtors

For access to all Tucson market reports with historical graphs, click here.

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