TUCSON (January 30, 2025) -- Picor reports that in Q4 2024, Tucson’s office market showed stability, maintaining a 10.2% vacancy rate. The year-to-date (YTD) net absorption improved from -433K square feet (sf) in Q3 to -392K sf in Q4, signaling a positive trend in office space utilization. The medical sector led market activity, with notable transactions including Meridian’s acquisition of a 95,210 sf former Heart Hospital leased to El Rio, and TMC’s purchase of 2.4 acres (104,544 sf) of land. The Pain Institute of Southern Arizona (PISA) also began constructing a 16,137 sf medical office and surgery center in Oro Valley.
Strong leasing demand persists in the Foothills submarket, particularly along the Skyline-Sunrise corridor and in the southeast’s Houghton corridor, with limited office inventory. Downtown Tucson has seen a rebound in office leasing due to the ongoing revitalization efforts. Tenants are generally seeking reduced footprints during renewals due to remote schedules.
Professional office lease rates have shown gradual, significant increases, especially in premium submarkets, with the average lease rate reaching $24.40 per sf. The investment sale market shows modest improvement, driven by the increasing 1031 exchange activity. Pricing trends vary, with larger vacant office buildings offered at discounts while smaller properties under 4,000 sf maintain stronger demand. Vacant former call centers are being repurposed for industrial use, reflecting evolving market dynamics. The potential for continued interest rate reductions suggests growth in investment and leasing activity in the coming quarters. However, owners and investors remain guardedly optimistic in light of national political and economic changes.
