Industrial Market Overview 2016

Industrial Market Overview 2016

INDUSTRIAL OVERVIEW

Chuck Blacher

Industrial Specialist

Chuck Blacher Industrial Real Estate ProfessionalJanuary 28, 2016

The over abundance of crude oil is destabilizing markets and countries around the globe.  The one product that is so vital to our economy which you would think in over supply would have positive effects to our economy is doing just the opposite.

Demand for U.S. products and services from countries that depend on oil revenue will contribute to the slowdown in the U.S. economy.  Is our stock market slump anticipating this slowdown?  Only time will tell over the next six months.

China is currently in a growth rate of three to five percent and rapidly heading lower. The U.S. will hopefully chug along at 2 percent, hopefully ignoring what could be a global recession. The U.S. is the most insulated from this than about any other country. There is a real possibility that 2016 will be a difficult year for most economies outside the United States. Globally, there is a shortfall of economic demand relative to capacity. This condition feeds a strong dollar and lesser demand for American goods and services; thus, dampening growth. It appears that the U.S. economy will continue its slow climb following the recent recession. Unemployment is relatively low. We are entering the next phase of U.S. monetary policy, increases in interest rates. This has been highly anticipated, but given all the bad news out there, it appears that number of rate increases will be much more limited in 2016 than originally expected.

The Tucson Industrial market ended the year with a vacancy of 9.4 percent, down slightly from 9.7 percent at the mid-year level or at 10.7 percent at the end of 2014. Rental rates have decreased slightly from the second quarter of 2015 from $6.55 per square foot to $6.52 per square foot.

Net absorption for the past three quarters was a positive 402,000 square feet as compared to 73,176 square feet in the second quarter. Absorption of warehouse space was 347,000 square feet as compared to 27,000 square feet in the second quarter.

The largest lease signing in 2015 included:  164,478 square feet signed by Highland Valley Partners at 6874 S. Palo Verde in the south market, the 60,000 square foot deal signed by Ventana Medical Systems off Tangerine Rd. in the North market, and a 56,773 square-foot lease signed by On Trac at 6855 Lisa Frank Ave in the Airport area.

By the end of the year, two buildings totaling 270,000 sq. ft. were completed in the Tucson market area. This compares to nothing completed in the early part of this year. No new construction is underway at the end of the year.

The total Industrial inventory in Tucson is about 40,824,751 sq. ft. in 2,517 buildings at the end of 2015.  The warehouse sector consists of 31,252,959 sq. ft. in 2,046 buildings.

Total year to date Industrial building sales activity was up compared to last year. In the first six months of 2015, the market saw three Industrial sales with a total volume of $8,750,000 with an average price of $22.75 sq. ft.   In the first six months of 2014, there were three transactions with a total volume of $7,540,000 with a price per square foot of $105.43.  One of the largest transactions that occurred within the past four quarters is the sale of 4775 S. Butterfield Dr.  This 96,000 square-foot industrial building sold for $3,400.000 or $77.29 per square foot. This sold on September 10, 2015.  There are currently 59 Industrial buildings for sale 5,000 square feet or larger.  During the year 2015, 57 buildings sold leaving about a one-year supply, a positive development.

Trolling for the big fish you need the best skipper, equipment, the right bait, lures, teasers or whatever to attract the big one. Worms won’t do. Obviously, Tucson has not attracted the big fish or companies to relocate or startup as our local economy is stagnated with minimum growth. Is someone’s head in the clouds….if 100,000 foot balloon rides for $75,000 is a Silicon Valley Venture Capitalist type startup, someone must be on another type of high. This type of focus is no different than the human canon shoot over the Grand Canyon, or the ride over Niagra Falls in a barrel.  It creates a temporary distraction but solves nothing for our economy.

Tucson has a lot to offer but we need new blood, a new strategy and a laser beam focus to succeed. Doing the same old, same old has achieved nothing and we need a new direction or expect the same results.

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