Tucson commercial real estate forecasters predict continued slow growth in 2014
Top specialists from the local commercial real estate scene are taking looks back and forward as they gear up for another year that they expect to look pretty familiar.
Hank Amos, president and chairman of the board for Tucson Realty & Trust, said progress is “like running in molasses.” He said the industry ranks about a four on a scale of 1-10 — there’s just not a lot of business velocity.
Tucson Realty & Trust, Cushman & Wakefield | PICOR, and others have prepared reviews and predictions for their respective specialties. Here are a few of their thoughts:
Industrial
TRT’s Chuck Blacher said there are more than 100 buildings for sale in Tucson. A few years ago, there were so few for sale, it used to be hard to find them for prospective clients, he said.
Until new home construction picks up steam, the subcontractors — roofing, concrete, excavating, plumbing, etcetera — that occupy contractor yards and warehouses will be missing, and the industrial market will languish. Manufacturers — gun-shy during the still-uncertain economy — are taking on second shifts rather than committing to more overhead. They’re also turning to automation, which limits job growth.
He listed the largest lease signings as an 116,840 square-foot deal by Global Solar Energy Inc. at 8500 S. Rita Road, and Excelsior Super Foods re-lease of 112,000 square feet of the 140,000 square-foot space Solon Industries vacated at 6950 S. Country Club Road.
The local industrial market ended the year with a vacancy rate of 10.2 percent, he said.
Blacher predicted 2014 to be like 2013, or perhaps a little better, with hopefully more fruit to yield in 2015.
“My guess is if my lemon tree survives another freeze this winter, then the economy also stands a chance,” he said.
Cushman & Wakefield | PICOR’s Russ Hall said the industrial segment is in a hole, but making progress.
“We weren’t able to say that a year ago today,” he told the crowd at this week’s forecast breakfast by the Institute For Real Estate Management and Building Owners and Managers Association Greater Tucson.
He put the vacancy rate a little higher than did Blacher, at 10.5 percent, but said it was an improvement from last year’s 11.6 percent.
Most of the local deals were smaller, under 20,000 square feet or even smaller than 5,000. Small business growth has dominated the landscape- either small businesses coming out of garages, or young entrepreneurs spreading their wings, which Hall said is “a beautiful thought.”
Retail
Pat Darcy, TRT’s retail division head, said the market turned a corner last year and saw steady improvement, with increased absorption in retail space due to the small amount of new construction, redevelopment, and the leasing of most of the region’s vacant big boxes.
Darcy doesn’t expect much new development this year. Major developments that will open this year are the Houghton Town Center at Houghton and Mary Ann Cleveland Road (home to a Walmart, Discount Tire, Panda Express and more), the Guitar Center and Conn’s Home Entertainment, two big boxes at the Marana Marketplace at Orange Grove and Thornydale, and a Whole Foods at Ina and Oracle roads.
He noted that outdated retail space in Tucson’s central core has been replaced with new spaces and stronger tenants, for example, last year’s redevelopment of the shopping center at Broadway Boulevard and Wilmot Road.
Gay Jarvis of Cassidy Turley said the retail vacancy rate’s drop from 7.9 to 7.1 percent was “turtle progress, but progress.” Rental rates are pretty flat, but retail has seen its strongest net absorption since 2008 and almost 400,000 square feet was delivered, the most in four years. This construction was tenant-driven rather than speculative development.
Darcy had some specific predictions, including: More nontraditional tenants like health clubs, charter schools, pawn and thrift shops, churches and medical care facilities moving into shopping centers; the closure of four of nine local stores as a result of the Office Depot-Office Max merger; higher vacancies along Grant Road and Broadway Boulevard in the path of planned road projects; and the sale of the El Con shopping plaza.
Office
Stagnant, according to a report by TRT office and investment specialist Michael Gross.
He said the local office market is about 18 percent vacant, and he said it will stay in that range for the year thanks to the uncertain economy.
Many leases are now shorter term; landlords are cutting deals at lower rates, but don’t want to commit to them for long, and tenants don’t want to commit for long either because of the economy. Some tenants are downsizing in response to technology, consolidation or layout efficiencies. Full-service rate ranges are $12-$15 per square foot (Class C buildings), $16.50-$19 (Class B) and $18.50-$20.50 (Class A).
Tucson Realty & Trust, Cushman & Wakefield | PICOR, and others have prepared reviews and predictions for their respective specialties.
Continue reading the Inside Tucson Business article by Hillary Davis