Industrial Market Report 2015

Industrial Market Report 2015

Chuck Blacher Industrial Real Estate ProfessionalIndustrial Market Report

Chuck Blacher

Industrial Specialist

January 29, 2015

The Industrial Market and Job growth in Tucson are just struggling along.  Anything faster would require a trip to the emergency room, or better yet, to Urgent Care (we’ve got plenty of those around now if you’ve noticed.) While improvement at the national level is expected to gain momentum later in 2015, Tucson will lag behind.  Job growth in Tucson is still anemic. The national unemployment rate is 5.6 percent, while Tucson is 6.2 percent.  Unfortunately, job growth here is in lower-wage jobs such as retail, food services, tourism and health services.  Graduates from the University of Arizona with a degree in Landscape Architecture should buy a one-way ticket to Denver, Albuquerque or the Bay area.  There are no jobs here. There are limited job opportunities for graduates here at the present time. Construction or home construction is not expected to pick up in 2015.  There may be some improvement in 2016.  This should keep demand for warehouse and contractors yards catering to the building trade weak.

The vacancy rate at the end of the 4th quarter is 10.6 percent, down slightly over the previous quarter at 10.9 percent.  Net absorption in the 4th quarter was a positive 176,364 square feet compared to 146,738 square feet in the 3rd quarter.  Rental rates at the end of the 4th quarter were at $6.49, a slight increase of .5 percent over the previous quarter.

Warehouse net absorption was a positive 109,608 square feet in the 4th quarter compared to 110,635 square feet in the 3rd quarter, a slight decrease.  The second quarter was a negative (117,000 square feet) and a positive 6,739 square feet in the first quarter, so there is some improvement moving forward.

The largest lease signings in 2014 were:  1) 135,768 square feet by Intuit at 2800 E. Commerce Center Place in the South market; 2) 83,140 square feet by Amcor Pet Packaging at 6161 S. Palo Verde, also in the South market, and 3) 60,405 square feet by Revenue Cycle Service Center at 6223 S. Palo Verde, again in the South market.

During the fourth quarter, one building totaling 49,751 square feet was completed compared to 10,000 square feet in the third quarter with nothing completed in the second and first quarter.  Some of the deliveries of space were for Freightliner, a 49,751 square-foot facility.  The only project under construction at the end of the fourth quarter at Palo Verde and Corona Rd. is for Fedex, a 210,000 square-foot building.

Sales of industrial buildings 15,000 square feet or larger fell during the third quarter compared to the second quarter.  One building totaling 22,550 square feet closed at $59.87 per square foot, totaling $1,350,000, compared to two transactions totaling $5,850,000 in the second quarter. The total dollar value of Industrial buildings sold in 2014 was down 66 percent over 2013 from $26,655,000 in 2013 to $8,900,000 in 2014.  Only four buildings sold in 2014 compared to eight in 2013.

There are currently 87 buildings for sale 5,000 square feet or larger and 121 for sale 1,000 square feet or larger.  At the current rate, it might take 5 decades to sell your Industrial building, but conditions do change.  Hopefully in the later part of 2015 and into 2016, market activity should pick up.  Employees take up space and as the job market improves here in Tucson, demand for Industrial space should pick up. We are looking forward to that at the end of 2015 and into 2016.

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