Industrial Market Overview

Industrial Market Overview

Chuck Blacher Industrial Real Estate ProfessionalINDUSTRIAL OVERVIEW

By: Chuck Blacher, Industrial Specialist

Industrial vacancy rates of 10.1 percent and 11.6 percent for Tucson and Phoenix are among the highest in the nation. Cities back East like Providence, Rhode Island, whose entire economy was fueled by the manufacture of costume jewelry, which is nonexistent now due to imports, is at 8.1 percent and Rochester, New York, who lost their largest employer Eastman Kodak, stands at 9.7 percent below Tucson’s vacancy rate.

Most communities west of the Mississippi are faring much better than Tucson or Phoenix.  Listed below are major cities that are doing much better with lower industrial vacancy rates than Tucson:

1.  Corpus Christi        7.5 %          7.  Los Angeles         3.2%
2.  Dallas                     7.7 %           8.  New Orleans        6.2%
3.  Denver                   4.4 %            9.  Portland               5.4%
4.  Houston                 4.8 %          10. Seattle                  4.9 %
5.  Lubbock                 2.3 %           11. Albuquerque        5.6%
6.  Las Vegas              8.5%            12. Salt Lake City         4%

These communities are doing something right or Arizona is doing something wrong. You can no longer depend on home construction or retirees to fuel the economy here in Tucson.  Increase employment and fill up your vacant industrial buildings.  Hospitality and service jobs are low paying and not the answer. Recruiting solid manufacturing jobs is probably the answer. Bodies take up space and reduce vacancy rates; thus, the whole economy benefits from higher paying jobs, etc. etc.

The highest vacancy rates nationally are in Wilmington, Delaware, at 18.7 percent, Syracuse, New York, at 10.1 percent on par with Tucson, and Rome/Utica, New York, at 13.2 percent. I guess in upstate New York the students graduate from high school, quit milking the cows and flock to the nearest city.  My wife did and so did most of her classmates.

Tucson’s industrial vacancy rate was down slightly the first half of 2015 from 10.7 percent to 10.1 percent.  Not enough to get our temperatures down, we’ve got plenty of heat in the wrong places.

Nationally, 280,000 jobs were added in May, but the unemployment rate increased slightly because more people entered the job market anticipating work. Unemployment nationally is currently at 5.5 percent, which really doesn’t represent what the “true” unemployment rate is.

The largest first-half lease signings in Tucson were:  45,908 square feet by Cactus Portable Storage at 6161 S. Palo Verde, 27,500 square feet signed by Genco 1 at 6350 E. Littletown Rd, and 25,295 square feet signed by Schletter at 2201 N. Forbes Blvd.

There is currently 270,000 square feet of industrial space under construction, 210,000 square feet for FedEx and a 60,000 square-foot facility pre-leased to Ventana/Roche.  There were 11 sales of industrial buildings during the first half of 2015, 5,000 square feet or larger. Two of these were to the University of Arizona.

The average rental rate for industrial buildings here in the Tucson Market is $6.50 per-square- foot, up from $6.49 per-square-foot at the end of 2014 – not much of an increase due to the lack of demand.  The total Industrial Market here in Tucson consists of 40,383,000 square feet, of which 10.1 percent is vacant.  That’s over 4,000,000 square feet and quite a challenge to lease up without any jobs coming in or a hot residential market.

Obviously, 360 days of sunshine isn’t doing the trick. Our summers are tough just like the winters are back East. The bottom line is what’s important to lure companies to Tucson. Tucson must be competitive with tax incentives to lure companies here. CEO’s need to justify their moves to satisfy their stockholders and the bottom line.

While the Retail Market is doing better than the Office, Land or Industrial Markets with a few more burger chains, we can probably be a cowtown again or become the burger capital of the world.  Tucson has sooo much to offer, so let’s do it right.

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