Tucson Office Space: Opportunity Knox

Highlights from our first quarter 2011 office market presentation at the Pima County Real Estate Research Council on May 5, 2011.

Tucson Office Market Fundamentals

• Tucson office vacancies are above ‘normal’ by four points (12.4%) and up 0.3% over 4Q 2010.
• Office rental rates continue to soften, slipping to $19.16 marketwide from $19.52 the previous quarter.
• Landlords are very aggressive in negotiating to retain existing tenants
• The bulk of market activity involves “flight to quality” or move-ups in the lease market and tenants taking advantage of historically low pricing to buy office space on the purchase/sale side
• Absorption figures suggest a slight decrease in overall demand and lease activity (negative 26,000 square feet for the quarter)
• Many companies have excess, underutilized space on their premises. The bulk of this ‘shadow space‘ must be absorbed before a healthy market returns.

Issues impacting Tucson office space and many other markets include high unemployment, housing foreclosures and weak pricing, stagnant economic growth and diminished financial reserves of small businesses. With no silver bullet to resolve these issues, we expect the recovery to continue to move slowly for commercial office space in Tucson.

Three Headquarters Alter the Horizon

New construction is a bright spot for the market:

• Sundt Corporation: Moved into their new 47,500 sf LEED-certified Tucson headquarters.
• Unisource headquarters (rendering shown): 170,000 sf downtown tower under construction, changing the skyline of the central business district (CBD) and bringing new vibrancy to the east side of Stone Avenue.
• FBI regional headquarters: 84,350 sf building west of downtown Tucson under construction, slated for completion next year.

Where is The Opportunity?

Great opportunities exist in the Tucson office market for tenants and buyers. Landlords under pressure can mitigate negative market forces with creative deal structures. Real time market information from active professionals is key to successfully navigating a demanding business environment.

Tom Knox‘s commercial real estate career dates to 1977 where he began as a broker at CB Commercial Real Estate then was promoted to leadership positions including Resident Manager and VP in 1982 through 1990. Thereafter and together with his JV partner, Tom provided real estate services to the Resolution Trust Corporation, the FDIC and The State of Arizona. In 1995, he joined PICOR and is now one of 13 company principals. He specializes exclusively in office, medical and investment properties.

Data source: CoStar Group

Photo credit: Gary Rumack Photography, rendering courtesy of Unisource Energy Corp.