Tucson Office Market Improves in Q1

Preliminary BLS data reported that Metro Tucson added 12,999 jobs year-over-year through February 2016, with total employment of 455,754 and an unemployment rate of 4.8%. These results demonstrate significant positive progress for the Tucson labor market. If preliminary figures hold, this level of employment would represent a record and the lowest rate of unemployment since April 2008.

Market Overview

The gradual improvement in office market metrics continued; positive absorption of 172,875 square feet (sf) brought overall Tucson market vacancy down 200 bps to 11.8%. Increased activity in the small-business sector, with more leases signed under 2,000 sf mirrored similar activity driving the industrial market. That being said, Tucson remained in contention for multiple employers of potential engineering and financial service positions, which would bring meaningful positive momentum for both the wage base and professional office absorption.

The first quarter construction completions totaled 108,950 sf, of which the largest were two expansions illustrating the significance of the community’s medical sector: Ventana Medical’s 56,600 sf in Oro Valley and El Rio Community Health Center’s 36,950 sf at Manning House downtown.

Consistent with the lease market, value pricing created impetus for activity and investment, though overall volume at $11.3 million was low, after record volume of $98.4 million in the previous quarter. Medical users represented six of the nine user office building sales in the market. With no buildings under construction and optimism on the rise, we forecast that pent-up demand for quality space may spur development of new medical and professional office product in the quarters ahead.


The forecast is slightly more optimistic than cautious, as it has been in previous quarters, thanks to higher economic development activity, employment gains, and improvement in other underlying market fundamentals. With iconic midtown space seeing significant capital investment and modernization at 5151 E Broadway (now being represented by our firm) and large floor plates available in Williams Centre, competition between downtown and midtown may heat in the coming months. Tucson City Council advancement of the Broadway alignment plan also signals progress and provides for commencement of construction in 2018.

Photo credit: Kellie Terhune Neeley

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