Arizona job growth has outpaced the nation since hitting bottom in fall 2010, and is making significant progress toward full employment. Much of the growth focused on Phoenix while Tucson’s progress was less robust. Local unemployment rates continued to improve ending May at 6.3%, a full percentage point improvement since January 2013. Retail sales in the metro area increased 2.1% year over year and May home sales rose with median prices up 12.0% and closings up 11.0%, both over May 2012. All of the key economic indicators are pointing in the right direction.
Retail Market Overview
Positive absorption continued for the fifth consecutive quarter. With over 200,000 square feet (sf) absorbed, market vacancy dropped to 7.6%. Activity was up markedly over this time last year, with national retailer interest as well as lease signings in Class B and C properties. That being said, the market remained bifurcated, with well-located properties seeing the highest interest and average overall asking rents remaining level.
Small business financing became increasingly more accessible, with an improved climate for retailers requiring equipment leases and real estate acquisition.
Retailer activity of note included the opening of Summit Hut and signing of Fleet Feet at Oracle and Magee, and additional downtown eateries opened or committed, including Gio Taco at the new Plaza Centro and Pizzeria Bianco in the Rialto Block. Petco joined Joann Fabric and Ace Hardware as entrants to the Sahuarita market, absorbing a formerly vacant Bashas’ grocery location. Planet Smoothie is in the market for three locations and Wendy’s is repositioning and expanding their market coverage. Finally, Burlington Coat Factory signed in the former Mervyn’s space at Santa Cruz Plaza in the southwest submarket.
From an investment standpoint, triple net properties remain strong both for single tenant properties and credit multi-tenant centers. Investor appetite for challenged assets is up, against a backdrop of lower inventory. Market tightening has created a sense of urgency that the window of opportunity is narrowing as supply dwindles and prices increase.
Outlook
Downtown and Sunlink, the Tucson Modern Streetcar line, remain Tucson’s bright spots for development opportunity and construction. Coupled with University of Arizona President Hart’s vision in the arena of innovation and technology transfer, these sparks of promise will hopefully lead to improved economic activity for the region. The Rosemont Mine, which could directly employ over 400 with more indirect jobs, cleared another permitting hurdle. Forecasters expect housing activity to accelerate through 2015, with positive net migration returning and increased job growth for Arizona over the same period. In the shorter term, Arizona will feel the effects of federal spending cuts as many states will, with employment change in the manufacturing and professional/business service sectors an early indicator of local impact.
For a printable PDF of this quarterly report with historical graphs, click here.
Sources: University of Arizona Eller College, CoStar Group, Long Realty
