Tucson Realty


2014 Tucson Office Market Overview by Mike Gross

PRO Mike 2Mike Gross, Associate Broker, Office Leasing and Investment Specialist at Tucson Realty & Trust Co.,  gives 2014 Tucson Office Market Overview

Honestly, the market has not really changed in the last two years. If tenants move, it is because they are upset with their existing landlord because of the condition of the building, they don’t have room to expand, possibly moving closer to where they reside and received a better economic deal with new improvements.

The activity is higher, but deals being completed are not at their advertised rates. Look at the last page of the handout.

Most of the calls I receive are from tenants checking for themselves to see if what they are being offered by their landlord is as good as what they can get elsewhere or from architects and contractors looking for work. For the most part, the leases that are finalized are shorter term, which does not bode well for the landlord, tenant or their lender. This is because the landlord is being forced to do deals at lower rates, which he doesn’t want to commit to for a longer period of time and the tenant doesn’t want to commit to a longer lease because of the uncertainties of the economy.

Some tenants are decreasing in size due to technology, consolidation of space or a more efficient layout of the existing space and the continuing sluggish economy of the nation. I personally believe tenants are just still unsure of what is going to happen with the tax laws, healthcare reform, the national debt and what affect that will have on their business and a score of other concerns, like their decreasing bottom lines.

Overall, specialized medical, staffing, training and specialized software/tech companies, financing, security and energy related companies seem to be holding their own or increasing somewhat in employment.

The Current Tucson Office Market:

In today’s market, existing Class “A” buildings are offering the total package at $18.50 – $20.50 (with an Effective Rate in the first year being lower due to free rent) per-square-foot “Full Service” depending on where you are looking in town.

Some existing Class “B” buildings are offering the total package at $16.50 to $19.00 (Effective Rate in the first year) “Full Service” and some “C” Class buildings are at $12.00 to $15.00 (Effective Rate in the first year) “Full Service”.

When I mention “Effective Rate”, you need to account for all free rent and the reduced rate.


Although the CCIM forecasters say the vacancy is approximately 12.5 percent as they go off of Costar’s numbers, the real vacancy at approximately 18 percent vacant.

I believe it will stay in that range for 2014 due to the uncertainty.

There are no quick fixes to our economy or our vacancy as there is no business velocity currently. We just need to keep working on improving Tucson’s image and think outside the box when it comes to our transactions we are contemplating.

Office Development

The small owner-user developments will continue to be at a standstill due to over inflated land and construction costs, developer profits and the lack of financing at these prices on a per-square-foot basis.

Tenant Improvements

The tax laws regarding write off of improvements or equipment purchases the past few years have been a big positive for landlords, tenants and buyers looking to renovate their existing space or a building they purchased. Who knows, to help the economy, Congress may extend them for 2014, but we will not know for a few months.

I think we will see some positives in 2014 due to the mid-term elections which could help give a booster shot to the economy. However, expect 2014 to be much like 2013, maybe slightly better, as it pertains to the Office market.


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