RETAIL MARKET OVERVIEW
Retail Division Head
As we edge closer to the second half of 2017, the Tucson Retail Market is continuing to maintain its momentum that started about two years ago. According to CoStar, the first quarter of 2017 saw a positive net absorption of approximately 235,808 square feet. A total of nine retail buildings with approximately 235,958 square feet were delivered to the market with 183,369 square feet still under construction. This was in comparison to the fourth quarter of 2016 which had a positive net absorption of approximately 39,832 square feet.
According to the Pima County Research Council, in the fourth quarter there were 337,691 square feet of retail space under construction. The first quarter of 2017 had approximately 295,548 square feet of retail under construction. Expect more of the same during the second half of 2017. I don’t think retail development will be like it was before 2007, but it will continue to show stable growth.
The current retail vacancy rate according to the Pima County Research Council is approximately 6.4 percent which, by the way, is what I predicted in my February 9 Market Review. Quoted retail lease asking rates are averaging $14.81 per square foot NNN.
The largest sales transaction so far in 2017 was the sale of the 53,678 square-foot Cinemark at Tucson Marketplace at the Bridges, located at 1300 E. Tucson Marketplace Blvd. The purchase price was $15,548,792 ($289.67 per square foot). The Seller was Eastbourne Investments Ltd., LLC, of Williamsville, New York, and the Buyer was Spirit Realty Capital of Dallas, Texas. The largest lease signing so far this year is the 52,566 square foot former grocery store space leased to U-Haul located at the southeast corner of Broadway/Camino Seco. Expect to see more of these self storage facilities going into obsolete retail centers.
In my opinion, there continues to be more optimism within the Tucson Retail Market. New companies relocating to Tucson and many existing companies have announced their expansion plans in the Tucson area. With these announcements, retailers are looking to increase their presence in Pima County.
In Tucson, urban infill is still where most of the action is. New retail developments are being built where old, obsolete retail properties used to be. As you drive on our major streets like Broadway Blvd. near Park Place Mall and Grant Road in central Tucson, you will see this repurposing and/or assembling of older retail properties. This trend will continue in the midtown area, which still has an overabundance of obsolete retail properties.
A Hooters Restaurant recently opened at Circle Plaza, a Larsen Baker development, on a pad site where Play It Again Sports used to be. A new Bealls Outlet has opened there as well, taking about 50 percent of the former Sports Authority space.
Older retail stores west of and across the street from Longhorn Steakhouse on E. Broadway are being assembled and scrapped. They will be replaced by new retail space. The former 32,000 square-foot Copper Country Antique building at the northwest corner of Broadway/Rosemont purchased by Larsen Baker will soon be remodeled and repurposed.
This year we have also started to see new retail developments being announced in the outlying areas of Tucson. TJ Maxx, Ross and Petco are currently under construction at Houghton Town Center in the Rita Ranch area next to the Wal-Mart with a lineup similar to the Arizona Pavillions at I-10/Cortaro Road in Marana. They are expected to open in late summer. New retail developments have also been announced in Vail, Catalina, and Sahuarita.
New retail tenants that recently entered the market are starting to add more stores. Examples include Hobby Lobby (2 stores), Natural Grocers (now with 4 stores open) and Bealls (3 stores). We can also expect continued expansion of urgent care and emergency medical care facilities, dental office chains, mattress stores, pawn shops, self-storage facilities and vape shops in retail centers.
Repurposing Older Properties
This redevelopment and demolition of older retail properties in central Tucson has been a good thing. There is too much obsolete retail space in Tucson’s central core. Property assemblages have and will continue to take these older, smaller retail spaces off the market and replace them with newer product and stronger retail tenants. Larsen Baker revitalized their previously mentioned Circle Plaza Shopping Center at Broadway/Kolb by adding Natural Grocers, a Hooters restaurant and Bealls. Amphi Plaza at Ft. Lowell and 1st Avenue now has a new Wal-Mart Neighborhood Market. We need more of this type of redevelopment throughout the Tucson area as it strengthens the retail market while helping give Tucson a much-needed facelift of its urban core.
As mentioned, a new 42,000 square-foot Wal-Mart Neighborhood Market is now open at Amphi Plaza located at the northeast corner of Ft. Lowell and 1st Ave. Approximately 60,000 square feet of old retail space was scrapped for this new market.
The former Grant Road Lumber company was bladed and is being replaced by The Yard, an approximately 20,000 square-foot restaurant currently under construction and being developed by the Sam Fox’s Restaurant Group. The restaurant is expected to open later this summer.
The Bridges at I-10 & Kino keeps adding new tenants. A 14-screen 57,000 square-foot Cinemark movie theater opened late last year. An approximately 25,000 square-foot Planet Fitness and a 30,000 square-foot Dave & Busters opened this year at The Bridges.
A 100,000 square-foot Fry’s super store opened late last year on Valencia Road in Midvale Park. It is now the number one Fry’s store in the Tucson area! Starbucks is on the hard corner, and 10,000 square feet of shop space is almost all leased up. That was the first new Fry’s store to open in Tucson in over 10 years.
On the northwest side at I-10 & Twin Peaks Road, the 360,000 square-foot Tucson Premium Outlets developed by Simon Development is on a roll, with sales above projections and trending better than their Chandler outlet mall. A four-story Hampton Inn is expected to break ground there in the next few months. Expect an auto mall to be developed at that intersection in the next year.
Even with all the new companies moving into Pima County, anchor tenants are still being very cautious about opening new stores in the outlying areas of Tucson. The words you will hear most often are “phasing in”, as developers and their bankers both want anchor tenants signed up and under construction before they allow the developers to start constructing their shop space. Anchor tenants and savvy developers want to see actual rooftops and not “rooftop projections” before moving forward to develop suburban sites.
A good example of this cautious approach is the Wal-Mart anchored 60-acre Houghton Town Center in Vail. The developer, Diamond Ventures, started out with just a freestanding Wal-Mart superstore. Stage 2 was leasing shop and restaurant/urgent care space on pad sites. Construction started only when these multi-tenant pad sites are 70 percent preleased. Now Diamond Ventures is in Stage 3, where junior anchors like TJ Maxx, Ross and Petco are now under construction with planned openings in late summer.
The Restaurant Scene
Expect several new restaurants to open, and others to expand in Tucson. Black Bear Diner is currently remodeling the former 5,500 square-foot Coco’s on Broadway across from Park Place, and will also open in the Irvington/I-19 trade area. Abuela’s Cocina Mexicana leased the former Old Pueblo Grille on North Alvernon and should open later this month. Look for Cheddar’s, Raising Cane and Kneader’s to add new sites. Other new restaurants include McAllister’s Deli, Checkers, Bisbee Breakfast Club, Lin’s Grand Buffett and Rally’s. The fast-baked pizza restaurant concept did not generate the synenergy we all thought they would, as they failed to account for the loyal customers who prefer Papa John’s, Domino’s, Pizza Hut, Little Caesar’s and Blackjack Pizza. Some of them have already closed.
I also want to spend some time talking about downtown retail activity, where approximately 14,400 people now live within a mile of downtown. The downtown retail market has over 475,000 square feet of storefront space, with a vacancy rate now around 6 percent. In the past five years, over 250 new businesses have opened in the downtown area. New businesses include Caterpillar, UPS Store, MiAn Sushi & Asian Bistro, Even Steven’s, Atmosphere Interior and Arizona Daily Star ”This is Tucson.” It’s also good news that CVS is interested in the former Chicago Store building.
The 8-story hotel boutique hotel called AC by Marriott with 137 rooms and 6,000 square feet of ground level retail with a two-hundred-space parking garage will open in August. New residential projects planned in downtown include the HSL Properties’ six story La Placita Village at One S. Church with ground floor retail and 240 apartments. These new developments will create more retail opportunities in the downtown area. For 2017-2018, over 450 new homes/apartments are proposed in downtown Tucson.
Look for more nontraditional shopping center tenants such as health clubs, charter schools, pawn shops, thrift stores, self-storage facilities and medical & dental care facilities to take the place of traditional retail stores.
High-visibility retail pads and end-cap shop space will command retail rates in the $30.00-$40.00 per-square-foot range in and near high-profile shopping centers.
Look for Wal-Mart, Safeway, Fry’s and Sprouts to be aggressive in the Tucson area.
On-line shopping is increasing, but “brick and mortar” is still the way to go. Amazon now has bookstores in Oregon and Washington!
Next year look for Amazon to start opening grocery stores in the Houston area and they expect to be competing with Kroger, Safeway/Albertson’s and other major grocer stores chains by 2025
Malls are reinventing themselves. Look for more open-air/entertainment areas in malls with kiosks and pop-up stores. Landlords are looking at ways to cut costs. Mall developers are becoming more creative, and some have added offices and condos to their mall properties.
A new retail center will be built on the southwest corner of Broadway/Rosemont.
A 78,848 square-foot Fry’s anchored neighborhood shopping center will be built at the southeast corner of Oracle Rd./Saddlebrooke Blvd., and is expected to open late in 2018.
Later this year, Safeway should start construction of a new grocery store in Vail and Fry’s at Houghton & 22nd Street.
A 58-acre power center developed by Bourn Partners is under construction at the northwest corner of I-19 & Irvington Road with a 50,000 square-foot Hobby Lobby as one of the anchor tenants. The site will have at least 17 pad sites! Preleasing for pad sites is underway, with tenants such as Chick-Fil-A, Chipotle, Oregano’s Pizza and Taco Bell committing.
Keep an eye on Sears which has announced that in the next year they will be closing 245 of its K-Mart and Sears stores. Macy’s and JC Penney are also closing stores. These traditional retailers did not make adjustments to keep up with the changing times and now are just trying to survive.
Look for more big-box tenants to become more flexible with their store sizes. Target has started to build 45,000 square-foot stores.
Tenants who have made adjustments and continue to be successful include Costco, Wal-Mart, QuikTrip, Safeway and Fry’s.
In 2018 a new retail development will open in Sahuarita across from the Wal-Mart, at Nogales Hwy & I-19. A 30,000 square-foot Sprouts along with Petsmart will be the anchor tenants. Sprouts has found a nitch in the Tucson area grocery store arena.
Look for small independent gas stations and convenience stores to continue to close and be redeveloped into single-tenant retail sites. Sadly, familiar restaurants will continue to close. As every new restaurant opens, it takes customers from other nearby restaurants.
Mom and Pop tenants will continue to battle with the chain stores, Amazon and road-widening projects. Look for more local tenants to close due to the competition of national chain stores and internet shopping.
The slow-going road-widening project on Grant Road from Stone to Swan Road has been hard on tenants and property owners. These property owners are in a difficult position. They don’t want to make tenant improvements as the City may want to blade their property and it’s hard to lease or sell, as they don’t really know how much land the City will “take”.
The East Broadway widening project from Euclid to Country Club was approved by the voters in 2006. It’s now 2017, so imagine owning a retail property in that area and wanting to sell it or remodel it? These projects will continue to create more vacancy due to the uncertainty of the timing of the road work and the timeframe of the City’s ability to acquire properties for road widening. It’s called condemnation blight. That said, Rio Nuevo is coming in and will make investments on Broadway to downtown. This will make that one-mile stretch known as the Sunshine Mile and, hopefully, the “next” big thing for Tucson and the continuation of downtown’s success transferred to it.
One issue we need to watch closely is our country relationship with Mexico. Mexican shoppers spend over one billion dollars a year in Pima County. A drop off in trade would have a major impact on our economy. The devaluation of the peso is already having an affect on cross border shopping.
Look for more retail activity in Marana, Vail, Sahuarita, Corona de Tucson and Oro Valley, areas where home building will be very active. Tucson’s increased population should spur new retail construction.
The Retail Market continues to improve and even better times are ahead.
Midyear Retail Market Overview 2017
INDUSTRIAL MARKET OVERVIEW
The Industrial Market in Tucson seems to be on its own flight path. It certainly hasn’t taken off with the National economy or some of the markets here in the United States. Our Industrial vacancy rate in Tucson at the end of the first quarter hovered around 7.5 percent. Rental rates for the same period decreased from $6.83 per square foot to $6.71 per square foot.
The overall U.S. Industrial Market is maintaining growth at a record-breaking pace. The national Industrial vacancy rate continued to decline in the first quarter to 5.3 percent, well below the 10-year national average of 8.3 percent. Nationally, demand remains promising for 2017 and a year of solid growth. Also, nationally, construction is up 24 percent over the fourth quarter of 2016. Dallas, Atlanta, Cincinnati, Chicago, Memphis, Phoenix and Stockton are some of the more vibrant markets. The lowest vacancy rates nationally are Los Angeles, Savannah, San Jose, Nashville, Seattle and Detroit. The New York City area along with San Francisco had the highest combination of growth in market rents and occupancy gains for the past two years. Sales volume currently in New York City plummeted 58 percent compared to last year. Uncertainty about the fate of Trump’s economic agenda could hold up deals across the country. Real Estate investors worry that Trump’s industry-friendly tax cuts will fail to pass and at the same time, others figure that lower taxes and higher spending could spark inflation and rising interest rates in the debt-driven business.
Tucson, unfortunately, is taxiing around the runway trying to figure how to get the Industrial market off the ground. Our city is dependent on the Hospitality and Home-building trades which, fortunately, are relatively active as we speak. Manufacturing is a challenge here and nationwide due to less expensive labor costs across the border and Far East. Warehouses sell real estate but don’t employ a lot to people.
Industrial absorption in Tucson in the first quarter was 92,644 square feet as compared to 240,000 square feet absorbed in the fourth quarter of 2016, 994,451 square feet in the third quarter and 227,485 square feet in the second quarter of 2016.
Business Center Drive
The largest lease signing was 16,437 square feet signed by Stratsys on Hemisphere Loop in the south market, 13,440 square feet signed by Kawasaki at Business Center Drive in the north market and 11,406 square feet signed by Filter products at Fremont Avenue in the central market.
The largest project underway at the end of the first quarter is for Old Dominion Freight, a 20,160 square-foot building pre-leased to the tenant and a 19,811 square-foot building pre-leased to Switchgear Solutions.
Total Industrial sales of 15,000 square feet or larger were in 4 buildings up to June 1, 2017. The transaction volume was $3,990,207. Total square footage was 77,752 square feet with an average sale price of $53.80 per square foot. During the fourth quarter of 2016, transaction volume was $8,519.842 in five buildings totaling 172,455 square feet with an average per-square-foot price of $49.40 per square foot as compared to six transactions totaling $22,300,464 in the third quarter. The total square footage was 314,008 square feet with an average sale price of $71.02 per square foot.
The second half of each of the past five years have been disappointing for the Tucson Industrial Market. The first half of 2017 is modest at best with no major announcements for the Industrial sector, though rumors abound. Whether our market will rebound in the second half is anyone’s guess; however, housing, both the resale market (up 11.5 percent) and the new home sale market (up 12.3 percent) are on fire. With new construction slated to meet rising demand, many smaller industrial properties should see increased leasing and sales activity as the trades that feed home construction comes back to Tucson and the existing tenants expand.
Tucson Industrial Market Midyear Overview 2017
TUCSON OFFICE MARKET OVERVIEW
Office / Medical Leasing Specialist
Roughly six months ago we declared that despite the fact that we live in the Sonoran Desert, the clouds were parting and the sun was shining for the first time in about a decade. We also said the political climate is sticky and contains some dark clouds – stay tuned. As anyone who has been in the commercial real estate business for any amount of time knows, the pendulum swings up, then inevitably down again. It’s the length, breadth and timing of these swings that keeps prognosticators guessing. Tucson is still chugging toward the top of the arc, and appears to be gaining momentum. There are times when it pays to be a laggard. We may still be riding the elevator up, waiving to much of the rest of the country as they wonder to themselves, “perhaps it’s time to take a look at Tucson”.
Our most significant and reliable data resource is CoStar, and its most recent public declaration tells us that office vacancies in Tucson have decreased to 10.9 percent, down from 11.1 percent at the close of 2016 (by way of comparison, the average vacancy rate for the entire country is about one percent point lower). As always, we believe that CoStar understates the actual vacancy rate by a percentage point or two, simply because it’s nearly impossible for their data researchers to drill down far and accurately enough to hit pay dirt. Bottom line is that the trend is still our friend when it comes to vacancy numbers, and that also applies to absorption and rental rates, both heading in the right direction, especially if you are a landlord.
Through the first five months of 2017, the three largest sales (by dollar volume) are:
- 4575 E. Broadway Blvd., 18,969 S.F., three-star, single story building constructed in 1975 (extensively remodeled in 2010). Sales price $3,000,000 ($158.15/S.F.). Purchased by Sinfonia Healthcare.
- 2919 E. Broadway Blvd., 29,610 S.F., two-star, three story building constructed in 1984. Sales price $2,400,000 ($81.05/S.F.). Purchased by Center for Employment Dispute Resolution.
- 5049 E. Broadway Blvd., 25,878 S.F., two-star, two story building constructed in 1979. Sales price $1,800,000 ($69.69/S.F.). Purchased by Community Foundation for Southern Arizona.
For the same period, the three largest leases (by size) are:
- 9070 S. Rita Road, 27,228F. occupied by Ascensus, Inc. (a retirement and college savings services provider). Three-star, 3 story building constructed in 1980, owned by the University of Arizona. The current vacancy in the building is approximately 32 percent.
- 5151 E. Broadway, 13,209F. occupied by Bayview Loan Servicing. Four-star building, multi-story mid-rise constructed in 1974. The building’s vacancy rate has dramatically declined in 2017.
- 551 W Magee Road, 11,120F. occupied by Carondelet Health Network. Two-star, single story building constructed in 1995.
Other highlights for the first quarter of 2017 include:
- Net absorption for the overall office market was positive 56,438 square feet, with Class “B” offices marking the only positive absorption figures (both “A” & “C” experienced some negative absorption.
- Average rental rates were up again over the prior quarter (up 1.4 percent to $18.64 per square foot).
- There was still 88,631 square feet of new construction still underway as the quarter ended (that includes a 61,000 square-foot facility being constructed for Casa De Los Niño’s, and a 11,771 square-foot facility for the Girl Scouts of Southern Arizona.
- The central business district continues to experience a strong economy, with a vacancy rate of only 6.8 percent across all classes of office structures.
- The vacancy rate in the suburban markets decreased to 12.0 percent from 12.2 percent in the prior quarter.
Overall, it’s a pretty picture for Office finally, and getting more glamorous all the time as we seem to hear at an almost monthly rate of some new enterprise either considering Tucson or making firm plans for expansion in the Old Pueblo. It is jobs and an expanding economy that fuels the Office Market. Tucson experienced 5,300 new jobs last year and 7,100 are expected this year. Vacancy is falling, rates have firmed and are beginning to move up, and the Office Market which has suffered for many years is rebounding well.
Tucson Office Market Overview 2017
With the Stock Market gaining over 2,500 points since the Presidential election, which is an approximate 13 to 14 percent increase, why would investors invest in real estate both nationally and locally? The best answer is stability. The stock market, though it is making unprecedented gains since the election, is not a consistent and stable platform for relatively secure investments. For the most part, though subject to cycles, the real estate markets are somewhat stable.
Nationally, commercial real estate investments seem to be continuing in an upward trend, as they did for 2016 and the first half of 2017. But, locally, we seem to be lagging behind the national trends a bit, with the exception of Multi-Family sales, which I will get back to later in the report. I think the reason we are lagging behind the national trends is due to the following, which I found while researching Tucson Employment Statistics:
|Family Median Income:
|Recent Job Growth:
|Future Job Growth:
Population By Occupation
|Management, Business, Finance:
|Engineering, Computers, Science:
|Arts, Design, Media, Sports, Entertainment:
|Healthcare Practitioners and Technology:
|Firefighters, Law Enforcement:
|Food Preparation, Serving:
|Sales, Office, Administration:
|Farming, Fishing, Forestry:
|Construction, Extraction, Maint / Repair:
|Production, Transport, Material moving:
Any investor looking at Tucson can find out the details as I did and this might be one of the reasons for Tucson lagging as an investment mecca, because there is a lack of depth to our job market. But one of the positives I see in the above statistics is Future Job Growth, which is approximately 36 percent over the next several years. This job growth has put Tucson on the investment radar and why we are seeing signs of out-of-town and out-of-state investors looking seriously at Tucson and/or actually making a move again on Tucson. But just like typical growth patterns of an area or market, the housing is developed, then the multi family, then the retail market to support the residential growth, then the office market to house the job support the second phase of growth and finally the industrial to support the manufacturing growth. This is what we are continuing to see in Tucson. But, with 5,300 new jobs coming to Tucson in the near future (Caterpillar, Raytheon, Comcast, etc.) and 7,100 predicted for 2017, the demand for investment property in Tucson in all sectors will continue to grow.
Regarding Multi-Family, investors are buying nearly every Multi-Family property on the market. These buyers are from all over the country from California to Washington from New England to the southeast. The Multi-Family market is continuing to be the most active sector of the Tucson Real Estate Market because of the above and because it has higher absorption than other areas of the country, investors are looking at making Tucson a very attractive location for their money.
With overall vacancies near historic lows at about 6.5 percent, an 800-unit absorption over this period last year, low interest rates continuing and rising rents, it is no wonder why this sector has out-performed the other sectors in Tucson. The only concern I would have is the low CAP rates as compared to the other sectors on the market. Developers in Tucson are continuing to build apartments to catch up on a lull of construction over previous years to take advantage of renter demand and older inventory, 25-30 years old. This inventory lacks in the newer design and amenities developers today are producing. Two of the properties below are probably value-added opportunities as they will most likely be improved to today’s standards and then they will increase their rates.
The top 4 sales for Multi-Tenant properties this year are the following:
||$ / Unit
|1. The Enclave
||7300 N. Mona Lisa
|2. La Entrada Apts.
||255 N. Granada Ave.
|3. Sedona Springs
||373 N. Wilmot
|4. Peaks at Redington
||7700 E. Speedway
The Office Market has been somewhat active with some large users relocating, positive absorption (56,000 square feet), vacancies decreasing to 10.9 percent (per CoStar, which we feel is at least 3 percent lower than actual) and rents remained relatively flat, but beginning to rise. The office building sales activity has been somewhat mixed for the first half of 2017 with only smaller properties being sold. Four (4) transactions for buildings over 15,000 square feet for a total volume of $20,500,000 sold. The only CAP rate disclosed was 6.09 percent for the largest sale.
The top 4 sales for Office Properties this year are the following:
||Price / SF
||7741 N. Business Park
||4575 E. Broadway
|3. El Encanto
|| 2919 E. Broadway
|| 5049 E. Broadway
Retail in terms of vacancy and rental rates were relatively flat for the first half of 2017. Alhough reports are only available for the 1st quarter of 2017, net absorption was positive by 235,808 square feet. The only sales of retail product for the most part was in 4 transactions greater than 15,000 square feet, of which $38,600,000 was sold in 2017. The CAP rates disclosed on two of the sales were 7.2 – 7.5 percent.
The top 4 sales for Retail Properties this year are the following:
||Price / SF
|1. Tucson Marketplace
||1300 E. Tucson Mktp
|2. Tucson Marketplace
||1390 E. Tucson Mktp
|3. Midvale Park
||1625 W. Valencia
|4. Natural Grocers
||5600 E. River
The Industrial Market in Tucson saw mixed reviews compared to the national industrial picture. The rental rate during the 1st half of the year decreased about $0.12 per square foot to $6.71 per square foot. Absorption for the first half of the year was approximately 143,000 square feet. Sales of buildings greater than 15,000 square feet through the first half of the year were in 4 buildings totaling 139,046 square feet with a dollar volume of $9.2 million. Two were sold top users and one had a CAP rate of 7.54 percent.
The top 4 sales for Industrial Properties this year are the following:
||Price / SF
||840-850 E. 18th St.
||5600 S. Arcadia
||4675 S. Coach Dr.
||6270 S. Country Club
Overall, 2017 will be an interesting year in the Commercial Real Estate Investment Market as Tucson’s economy continues to improve and we attract more investors feeding off that positive. The most activity will be seen in Downtown (thank you, Rio Nuevo), in apartments (though not at the pace of previous years…it has to moderate sooner or later) and land for homebuilders. That said, investment sales have tapered off a little from 2016, with exception to Multi-Family, which investment picture seems to still be heading for the moon.
Tucson CRE Midyear Investment Market Report
President and Designated Broker
At the beginning of the year, we forecasted that the Land Market would be better than years past. This was due to a growing economy and a pro-business, pro-growth Trump agenda, fueled by last year’s addition of 5,300 jobs to Tucson and this year’s forecast of 7,100 jobs. That positive combination of national and local news propelled us to forecast a resurge in the Land Market both in sales and price increases.
At the mid-point of the year, this forecast is holding true. Consider the following:
- 2017 building permits year-to-date: 1,024, up 15.8%
- Residential home sales year-to-date: 6,250, up 11.5%
- Residential home prices year-to-date: $224,783 (average), up 4.6%
- Residential new home sales year-to-date: 732, up 12.3%
- Residential new home prices year-to-date: $335,697 (average). A Record! Up 17.9%
- Residential lot sales year-to-date: 224 sales, a 47% increase. Under contract 117, up 43%
- Residential lot inventory (months) year-to-date: 27.7 months, a 58.1% decrease
- Residential lot inventory (active listings) year-to-date: 1,466, a 10% decrease
- Residential lot prices year-to-date: $80,000 median, down 6%
According to CoStar, there were 39 transactions for the year through May totaling $17,488,468 for commercial and production housing land. The average sales price was $830,000 with a high of $3,500,000. Interesting to note was the sales price to asking price ratio of 95.46%. Another indication of just how strong the market is becoming.
As one can see, 2017 is shaping up to be a much-improved year from previous years and the forecast stands for the remainder of the year.
That said, the main issue affecting Tucson’s Land Market going forward is the lack of inventory for builders to purchase to meet the demand of new home sales. It is reaching a crisis point and what is evident is the downward trend the past few months for single-family building permits being pulled. Home builders are simply running out of lots in their subdivisions to build on. Nearly 40% of existing communities currently selling new homes have less than 30 lots remaining in inventory which is a less than one-year supply. This is compounded by the fact that developers during the decade old recession did not develop enough lots, because builders were not buying due to the crash of the housing market. Furthermore, this situation will worsen as developers are finding it increasingly difficult to rezone and/or plat in a timely manner as municipalities are taking longer to approve and new rules and regulations continue to pile on. It is taking forever…forever plus a year. Another setback as developments continue to push towards the outer areas of city limits is major infrastructure deficiencies, thus causing even longer delays. Finally, we are seeing that interior small land parcels have come into vogue for the first time in years in response to increasing consumer demand for in-town residential developments.
The upshot of all this – strong price increases due to lack of inventory. This year, lot prices for builders are up 10 percent to 15 percent in the Northwest and East Markets. Other areas not as much. The difference is due to areas in Tucson which are perceived by the buying public to be more “desirable”. However, all pricing for new homes will continue to rise (up 17.9%) as: A) lot prices increase, B) costs of labor and housing materials increase, C) inventory for new product shrinks as well as the inventory of the resale home market does (the old supply vs. demand).
Some of the larger, notable transactions this year for land:
- Northwest corner of Harrison Road and Old Spanish Trail for $1,250,000, 1.17 acres
- Southeast corner of Silverbell and Ina for $1,250,000, 2.30 acres to Circle K
- Cortaro north of Silverbell (ground lease) for $1,408,261, 0.70 acres. Auto Zone is the tenant.
- The Crossing at Sahuarita (Old Nogales Highway and Abrego Drive) for $3,500,000, 17.73 acres. New development, shopping center.
- 153 W. Sahuarita Road for $1,000,000, 0.73 acres to Smiths Food & Drug.
- Northwest corner of Tangerine & La Canada – Miller Ranch for $1,500,000, 8.60 acres. New location for Kevin Leman’s School.
- Thornydale Road north of Ina for $1,250,000, 5.95 acres. Medical use.
- Northwest corner of Valencia Road and South Camino de Oeste for $1,000,118, 1.40 acres to Circle K.
- Rancho Del Lago for $3,200,000, 30 acres (42 lots and a 71 lot parcel) to Meritage.
While the nation’s GDP grew only at 1.2 percent, the labor market is near full term. Thus far this year, Tucson added 250 positions from ADP and Hexagon Mining will add 120 jobs over five years. In addition, Accenture, the nation’s largest independent retirement and college savings services provider announced it will open an office in mid-2017 that could accommodate 170 associates. Rumors among us say there are more and bigger announcements to come. The positive jibe for Tucson regarding its prosperity and future continues to remain strong. Residential home sales are at levels not seen in years. Builder lot prices will increase in the double digits as lot inventory shrinks and new home product availability does, too. The strong resale home market (up 11.5%) will further deplete inventory, thus raising prices (up 4.6% already). The take away – if you are thinking of buying a home, now is the time before price increases really kick in along with rising interest rates. Tucson is on the upswing and so is its Land Market.
Tucson Commercial Real Estate Market Land Overview