Chuck Blacher, Industrial Specialist at Tucson Realty & Trust Co., offers Industrial Real Estate Market Overview
The leasing and sale of contractor yards and warehouses in Tucson will be challenging at best in 2014, not much different from 2013 and most likely not improve until mid 2015. Home construction trades, roofers, concrete and masonry companies, electrical contractors, paving, excavating, plumbers and HVAC companies all occupy this space and until new home construction picks up to 5,000 units annually, the Industrial Real Estate market will suffer. This past year approximately 2000 new homes have been built. Prior to 2006, 5,000 new homes were considered a good year and that peaked just prior to the beginning of the recession in 2006 at 12,000 new units.
Most homeowners nationally have not been mobile the past six years. They have been underwater with their mortgages and unable to sell; thus, unable to relocate even if they wanted. Locally, home prices are slowly rising, but still, have a way to go. The remainder of the “teens” will not be as robust as the early 2000’s. Manufacturers put on the second shift in uncertain times rather than commit to additional overhead by leasing additional space or the purchase of additional real estate. Automation in manufacturing is also limiting job growth by replacing new workers with machines and new technology.
Hopefully, with an improved robust economy, this will slowly start to change in the next 24 months.
The Tucson Industrial market ended the year with a vacancy rate of 10.2 percent. The vacancy rate was down slightly the last quarter of 2013 with net absorption exceeding 152,086 square feet for the fourth quarter, down 50 percent from the fourth quarter of 2012. Total absorption for the year ended at 478,810 square feet. Rental rates were up slightly at the end of the year at $6.27, a 3.3 percent increase over previous quarters. Only one building was delivered to the market toward the end of the year totaling 3,947 square feet, with only one facility 7,447 square feet still under construction at the end of the year.
The largest lease signings in 2013 included the 116,840 square-foot lease signed by Global Solar Energy, Inc. at 8500 S. Rita Road in the south market; the 42,549 square-foot lease signed by Timi Acquisition, LLC, at 1625 S. Euclid Avenue in the central market, the 33,356 square-foot lease signed by Synergy Installation Solutions at 6000 S. Country Club Road in the south market and Excelsior Super Foods released 112,000 square feet of the 140,000 square feet Solon Industries vacated at 6950 S. Country Club Road.
Total Industrial inventory in the Tucson market amounted to 39,667,812 square feet in 2,452 buildings. Of this, 30,071,197 was warehouse space in 1,984 buildings. The total Industrial sales activity in 2013 is down compared to 2012. The price per square foot in 2013 was $63.80 per square foot, down from $79.57 in 2012.
The economy still faces barriers this year. Steep spending cuts are unlikely, but miscellaneous tax increases and the effects of Obamacare will take center stage and could be a drag on growth. Europe’s economy is picking up slightly after a long recession. U.S. consumers have more money to spend due to increased hiring and last year’s stock market surge. Some economists expect the economy will expand 2.5 percent in 2014, up from 2 percent in 2013. Other economists expect job growth to top 3 percent in 2014. It hasn’t been at that level since 2005 and previous years economic forecasts have not panned out.
After mulling over all the statistics concerning Arizona’s economy, the National Industrial market, projected growth charts, all the predictions with all the variables, economic periodicals and projected reports for 2014, my guess is if my lemon tree survives another freeze this winter, then the economy also stands a chance. Every day seems to be a new season. Expect 2014 to be a carbon copy of 2013 or perhaps a little better with more fruit to yield in 2015….hopefully.