By: Barbi Reuter, COO, Cushman & Wakfield | Picor

Vacancy in the Tucson retail market remained at 6.6% in the first quarter, in line with the stability reported over a two-year span. Comparing year-over-year Q1 net absorption, the delta represented 139.0% more space absorbed in Q1 2016 than was lost in Q1 2015.

The top leases, highlighted in a table on the full report were led by Midtown Mercantile Merchants, a 29,211-square-foot (sf) C&W | PICOR transaction. Expansion of eateries, led by quick-service restaurants, remained the strongest market driver, with medical uses a close second. New openings included El Pollo Loco and Krispy Kreme near Broadway/ Craycroft, Taco Bell at Houghton/Old Vail, Chick-Fil-A at Kolb/Grant, and MOD Pizza and Smashburger in the northwest. By this writing, Charro Steak, Batch, and Elvira’s opened in downtown Tucson. In the medical retailing trend, C&W | PICOR leased the former Hollywood Video location at Broadway/Houghton to TMC One for clinic space.

Grocery activity included the reopening of two Safeway/Albertson’s stores reclaimed from the Haggen’s bankruptcy: Broadway/Harrison and Speedway/Silverbell. Natural Grocers is under construction at River/ Craycroft, to be accompanied by a second Tucson Kneaders Bakery. Walmart’s expansion at Speedway/Kolb demonstrated the challenges of infill expansion and the post-recessionary trend of movement into higher density sites.

Nordstrom Rack opened its second Tucson store at Broadway/Wilmot in late April, and Dunkin Donuts was under construction on a pad at the northwest corner of Tanque Verde and Sabino Canyon. McAlister’s Deli and Starbucks were under construction on adjacent pads at First & Wetmore.

The forthcoming closure of three Sports Authority stores, part of the national liquidation, is symptomatic of challenges faced by mid-level retailers in a barbell market where high-end and discounters prevail.

Sales activity in Q1 included 24 sales, 13 of which traded hands over $1 million. At $34.6 million, quarterly sales volume was below the pace for the prior eight quarters, while the average sale price of $148.03 per sf was more similar to pricing seen in 2013 and 2014.

Economy
Preliminary BLS data reported that Metro Tucson added nearly 13,000 jobs year-over-year through February 2016, with total employment over 455,750 and an unemployment rate of 5.2% (which improved to 4.8% since publication of this report). These results demonstrate significant positive progress for the Tucson labor market. If preliminary figures hold, this level of employment would represent a record and the lowest rate of unemployment since April 2008.

Outlook
The forecast is slightly more optimistic than cautious, thanks to higher economic development activity and employment gains. Tucson City Council advancement of the Broadway alignment plan signals progress and removes uncertainty from this key gateway to downtown Tucson. The Tangerine Road widening has commenced in the northwest sector, and home builder activity is trending up.

For full report https://picor.com/wp-content/uploads/2016/04/Tucson_RET_1Q16.pdf

Buckeye, AZ – D.R. Horton purchased 67 finished lots at Miller Park located at the Southwest corner of Southern Ave and Miller Rd in Buckeye, AZ. Scott Homes II, LLC, was the seller in the transaction.  D.R. Horton purchased the lots for $2.01 million ($30,000 per lot).

This is a new community for D.R. Horton in the Buckeye area. The homebuilder was already building at two communities there, Sonoran Vista and Watson Estates.

The transaction was negotiated by Jim Frazey, City to City Commercial, representing the Buyer and the Seller was represented by Land Advisors Organization.

For more information, contact Jim Frazey at (480) 729-6803.

Real Estate Daily News Buzz is designed to give news snippets to readers that our (yet to be award winning) editors thought you could use to start your day. They come from various business perspectives, real estate, government, the Fed, local news, and the stock markets to save you time. Here you will find the headlines and what the news buzz of the day will be.

Wednesday, the Dow Jones industrial average lost 99.65 points, or 0.6 per cent, to 17,651.26. The Standard & Poor’s 500 index fell 12.25 points, or 0.6 per cent, to 2,051.12. The Nasdaq composite index lost 37.58 points, or 0.8 per cent, to 4,725.64.

Benchmark U.S. crude added 13 cents to close at $43.78 per barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, fell 35 cents to close at $44.62 a barrel in London. In other energy trading in New York, wholesale gasoline fell 2 cents to $1.49 a barrel, heating oil fell half a penny to $1.33 a gallon and natural gas rose 6 cents to $2.14 per 1,000 cubic feet.

Rio Nuevo Board Unanimously Approves Caterpillar Relocation Proposal — In a one item Special Meeting, the Rio Nuevo Board unanimously approved the attached resolution that contemplates (a) paying Caterpillar $2 million in cash to offset its relocation costs, (b) reach an agreement with the City of Tucson to acquire the land selected by Caterpillar and (c) designing, building, constructing and leasing a headquarters building to Caterpillar for its Surface Mining Division. The estimated budget for such design and construction is $50 million. Subject to enforceable agreements between Caterpillar and the Arizona Commerce Authority and the Pima County Board of Supervisors, the Board will be soliciting bids for all aspects of the District’s participation in this Caterpillar relocation project.

Arizona Lawmakers Pass New State Budget Overnight – The Arizona Legislature gave final approval early this morning to a $9.6 billion spending plan for the fiscal year that begins July 1. The package came together after legislative leaders agreed to rescind a proposal to cut public education — at least for this fiscal year. The final deal demanded by moderate Republicans ensures there will be no loss of funding for schools that are losing students, small charter schools, and  district-run charter schools. The budget also means Arizona will remain the only state without a functioning KidsCare program (Arizona’s version of the national Children’s Health Insurance Program), as no authorization was given to revive the federally funded health care program that was cut during the recession. Tax cuts for businesses will continue under the new budget.

Weak US hiring report sends stocks lower on Wall Street — U.S. and global stock indexes moved lower a second day Wednesday following a dismal report on job creation that gave investors concern over the state of the economy. The data followed a round of economic news out of China and Europe a day earlier that also suggested sluggish growth. Stocks started lower and remained there throughout the day, following a survey by payroll processor ADP which showed U.S. companies hired workers at the slowest pace in three years last month. (AP)

Survey: US businesses add jobs at slowest pace in 3 years — U.S. companies added jobs at the slowest pace in three years in April, a private survey found, a sign that slower growth and volatile financial markets could be weighing on hiring. Payroll processor ADP said Wednesday that businesses added 156,000 jobs in April, down from 194,000 in March. Manufacturers shed 11,000 jobs, after losing 3,000 the previous month. Services firms added 166,000, down from 189,000. The figures suggest that businesses tapped the brakes on hiring last month after the economy barely expanded in the first quarter.

Negative Rates May Cost Property Investors More “Negative interest rates have real-estate investors facing a counterintuitive quirk: Their borrowing costs can actually rise as interest rates fall. This is a mounting concern for many property investors given the potential for rates to decline further as central bankers try to spur economic growth, according to the lobbying group Commercial Real Estate Finance Council. The impact is being felt in particular by property investors taking out floating-rate loans.” (The Wall Street Journal)

How Real Estate Adds to Retirement Income “For those looking to beef up their retirement income stream, real estate investing is another option to consider. But investing in real estate isn’t like writing a check to a mutual fund company. This one requires legwork, maintenance and perhaps a few headaches along the way. Think broken pipes, bad tenants or vacant rental units. Investors willing to pull up their sleeves and invest time along with money may find real estate could be another pipeline toward the multiple streams of income that we all desire. Real estate can be another form of diversification.” (U.S. News & World Report)

New Chicago high-rise will be city’s biggest Chinese property deal “China’s biggest commercial property company, Dalian Wanda, and a Chicago real estate developer have announced they will build a $USD900 million ($1.17 billion) skyscraper, the largest-ever real estate investment by a Chinese company in Chicago. Builders will break ground this summer on the Vista Tower, a 95-storey condominium and hotel complex that will be Chicago’s third-largest skyscraper, the two companies and Chicago city officials said in a statement.” (Commercialrealestate.com)

Hersha Sells Manhattan Hotels to Chinese JV Partner “Hersha Hospitality Trust makes another move in its capital recycling program with the sale of seven Manhattan hotels through the closing of a joint venture with China-based Cindat Capital Management Ltd. The price tag on the 1,087-key group of premium limited service hotels was $571.4 million. There are few spots in Manhattan that aren’t hot so the portfolio, with properties developed between 2003 and 2010, is well-located. Three of the hotels—Candlewood Suites, Hampton Inn and Holiday Inn—sit side-by-side in Times Square. The remaining assets include Hampton Inn Chelsea, Hampton Inn Herald Square, Holiday Inn Wall Street and Holiday Inn Express Water Street.” (Commercial Property Executive)

Boston Announces Plan to Ramp Up Housing Supply “The City of Boston released its quarterly housing report this week, and among other things, it detailed how Boston remains on target to meet its goal of creating 53,000 units of housing by 2030. During the first quarter of 2016, some 565 new housing units were permitted, for a total of 17,183 units that have either been permitted or completed since the launch of the administration’s housing plan, Housing a Changing City: Boston 2030, in October 2014. Currently, there are more than 8,000 new units of housing in construction in Boston, representing more construction employment in the housing sector than at any time in the last 20 years, the report said.” (Multihousing News)

Subway Revenue Drops as It Closes Hundreds of U.S. Restaurants “Subway Restaurants revenue fell in 2015 for the second straight year, a sign one of the fast-food industry’s stalwarts is losing ground to newer chains. Revenue dropped 4.3 percent to $1.11 billion last year, according to the company’s Franchise Disclosure Document, which was filed with the Minnesota Department of Commerce last week. Subway owner Doctor’s Associates Inc. also is slowing its pace of new restaurant openings and shuttering hundreds of underperforming locations. Fast-casual chains such as Panera Bread Co. have been taking share from Subway restaurants in the U.S., bringing its once-torrid growth phase to a halt.” (Bloomberg)

Aéropostale Set to Close 100 Stores, File for Bankruptcy Protection “Unable to shake off a long slide in sales, teen retailer Aéropostale is set to file for bankruptcy protection this week and close more than 100 of its stores, the Wall Street Journal reported on Monday evening. Unlike its higher end peers American Eagle Outfitters and Abercrombie & Fitch, Aéropostale has not been able to return to growth in the last years as young consumers turn away from branded clothing. The retailer has also been hurt by the growth of fast-fashion retailers like Forever 21, Uniqlo, and H&M. Aéropostale’s comparable sales fell 6.7% during the holiday quarter.” (Fortune)

Wal-Mart’s massive size may be an obstacle for further growth, analyst says “Wal-Mart Stores Inc. was initiated at underperform at RBC Capital Markets on concerns that the retailer’s massive size coupled with heightened competition and the broad shift to e-commerce are risks to both the top and bottom lines. After years of growing, ‘virtually everyone that was going to shop at Walmart, already shops at Walmart,’ RBC analysts wrote in a bearish Tuesday note. RBC estimates that Walmart stores serve more than 260 million people around the world every week and values the U.S. business at $300 billion. ‘Recent store closures and labor investments are a step in the right direction, but we feel that a lot more changes need to be made, from greatly improving retail basics to further simplifying the portfolio,’ RBC analysts wrote.” (MarketWatch)

Fairway files ‘prepackaged’ Chapter 11 “The parent company of iconic New York grocery chain Fairway Market has filed a “prepackaged” Chapter 11 bankruptcy restructuring Tuesday whereby lenders have agreed to exchange existing debt for new equity and debt in a reorganized company. Fairway, suffering under heavy debts and competition from a variety of formats, said it filed the plan after an extensive search for a buyer or other substantial investment was unsuccessful. Current lenders have also agreed to provide $55 million in debtor-in-possession and exit financing.” (Supermarket News)

More filling: Craft brew craze adds body to real estate market “The craft brewery craze flooding the Indianapolis area with custom suds makers shows no signs of receding anytime soon. The number of microbreweries is expected to top 50 by summer and has grown fivefold since 2009, when less than 10 existed, according to a new study from the CBRE real estate firm. Local microbreweries collectively occupy nearly 360,000 square feet of commercial space—space that otherwise might be sitting vacant, the study estimates.” (Indianapolis Business Journal)