Tucson Realty


Slow-growth pattern for industrial sector, and some optimism

Tucson’s industrial market continues to move in a slow-growth pattern. While much of its upward movement is due to government stimulants and still-low interest rates, local job growth and area business expansion are also contributing to the trend, lending an optimistic outlook for the future.

CBRE reports in its Tucson Industrial MarketView that absorption increased to 234,369 square feet in second quarter of 2013, with all submarkets experiencing an increase or no change as of mid-year.

Data compiled by the Pima County Real Estate Research Council along with staff from the University of Arizona’s Master of Real Estate Development program show a positive absorption in three of the last four quarters. As a result of these improvements, combined with the lack of new construction in the sector, vacancy rates are falling.

The report indicates, however, that lease and sales prices have not yet begun to recover.

According to CBRE, second-quarter 2013 vacancy rates in the Tucson area were 11.7 percent, which was 50 basis points lower than the first quarter and 40 basis points lower than that recorded one year ago. (A basis point is one one-hundredth of a percentage point.) The only submarket experiencing an increase in vacancy rates was the airport area.

Tucson Realty & Trust Co. addressed lease rates in its Commercial Real Estate Comprehensive 2013 Mid-Year Report, noting that industrial rental rates in Tucson remained the same for the past 18 months. These ranged from 30 cents to 60 cents per square foot per month for triple-net transactions. The Pima County Real Estate Research Council report, made in conjunction with the University of Arizona, said asking rents were $6.25 per sqyre foot.

Brandon Rodgers, industrial specialist with Cushman & Wakefield PICOR, said that absorption is one of the leading indicators of market direction, so the fact that it’s rising offers some confidence.

“It’s not dramatic, but it’s an improvement,” he noted.

Increases in pricing are still to come, he believes. “If we can string together three or four quarters of positive absorption and get vacancy rates to 8 percent, we’ll see an appreciation in pricing.”

Looking toward the final quarters of 2013 and into 2014, Tucson Realty sees encouraging movement in the industry. Foreclosures are slowing and consumer confidence is building as home prices rebound. Optimism is flourishing due to a number of major regional projects, such as a proposed airport bypass from I-19 to I-10; Guaymas, Mexico’s new deep-water port; the new modern streetcar system; and the Port of Tucson.

Tucson Realty’s commercial real estate professionals predict that such construction activity can lead to positive absorption of industrial space, and then, single-digit vacancy is attainable.

Continue reading Christy Krueger’s article in Inside Tucson Business


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