Tucson, AZ, April 17, 2023 — CBRE Q1 2023 Office report shows a leasing slowdown, with the direct average asking full-service gross (FSG) lease rate declining to $22.74 in Q1 2023, a 1.9% quarter-over-quarter change. The market experienced 40,055 sq. ft. of leasing activity but 79,963 sq. ft. of negative net absorption in Q1 2023, primarily due to East Central submarket move-outs. Vacancy increased 80 basis points (bps) and remained 380 bps higher than pre-pandemic levels.

The Tucson office market had a leasing slowdown in Q1 2023. The overall negative net absorption was driven primarily by multiple large tenant move-outs, which negated the gross absorption of several smaller new leases—this notably impacted vacancy, which rose to 14.7%, a year-over-year increase of 240 bps. In addition, the average asking FSG lease rate decreased nearly 2.0% from the prior quarter, with Class A and C remaining virtually unchanged. Lastly, no new developments broke ground within the quarter.

Availability and Vacancy

Office space availability in Tucson increased by 20 bps, reaching 16.0%. The most significant change occurred in the East Central submarket, which had an 80 bps increase in availability, furthering its position as the most available submarket at 25.3%. Other submarkets experienced more minor shifts in availability. The last available submarkets in Q1 2023 were the Downtown and North Central submarkets which finished Q1 2023 at 8.2% and 7.4%, respectively.

Vacancy saw a significant growth of 80 bps market-wide, ending Q1 2023 with a vacancy rate of 14.7%. Much of the rise in vacancy in the first quarter is attributed to already available space being newly vacant. Class A Office space experienced the most substantial shift in vacancy, increasing 160 bps from the previous quarter. Class C recorded a modest increase of 20 bps, while Class B remained unchanged from Q4 2022. The North Central submarket remained one of the most stable and attractive, with 6.6% vacancy.

Lease Rates

The Q1 2023 average asking FSG rate was $22.74 per sq. ft., which represented year-over-year growth of 2.5%. Quarter-over-quarter changes amongst class types were minor, where Class A average asking lease rates slightly declined while other building classes increased. Downtown remained a premier office location with asking rates at $23.64 per sq. ft., followed closely by the North Central submarket with asking rates of $23.64 per sq. ft. On the contrary, the Northeast submarket recorded an asking lease rate of $18.90 per sq. ft., a slight decrease from the quarter prior.

Net Absorption and Leasing Activity

The Tucson office market experienced 79,963 sq. ft. of negative net absorption in Q1 2023. Although the region saw several tenants occupy smaller spaces, these gains were negated by a handful of 10,000+ sq. ft. move-outs. Class A products had 84,618 sq. ft. of negative net absorption, significantly impacting the overall market. Class B recorded positive net absorption of 6,400 sq. ft.

Nearly all submarkets recorded negative net absorption, but East Central comprised the majority with -47,913 sq. ft. due to multiple large tenant move-outs at the Williams Centre II and 4801 E Broadway buildings. In addition, North Central experienced moderate leasing activity, with 23,595 sq. ft. of space leased within the quarter, making space even more limited in the submarket.

Development Activity

Tucson office development continues the trend of no projects breaking ground or delivering in Q1 2023. Rising vacancy and construction costs continue to deter office development. This trend will likely continue as space remains abundantly available, with a lack of tenant demand and interest rates expected to remain elevated into 2024. As CBD submarkets continue to struggle post-pandemic, high-value suburban submarkets like North Central are likely candidates for future planned developments.

Outlook

The Tucson office market shows several positive indicators of an opportunistic future ahead. Tucson remains a headquarter-friendly location due to ample Class A office space and affordable lease rates. The market continues to capture value as a rising technology and life science market bolstered by a strong talent pipeline and favorable operating costs.

To view the complete report, click here.

TUCSON, ARIZONA, April 14, 2023 – CBRE’s Research Team is reporting Tucson Industrial vacancy decreased 120 basis points (bps) quarter-over-quarter to 2.5% in Q1 2023. The industrial market captured 389,500 square feet of gross absorption, bolstered by activity in the Southeast submarket.

• Total construction activity increased slightly to 40,000 square feet, with no deliveries in Q1 2023.
• The Tucson industrial market had healthy leasing activity with 389,500 square feet of gross While renewals dominated market activity, new leases pushed net absorption to 191,465 square feet in Q1 2023.
• The vacancy rate dropped to 2.5% as new leases outpaced move-outs in Q1 2023. The decrease in vacancies was also a result of the lack of new product deliveries in the first quarter.
• Under-construction projects located in the Northwest and Airport submarket are anticipated to deliver in Q2 2023. Lastly, the direct average asking NNN lease rates remained nearly flat at $0.87 per square foot.

Availability and Vacancy
Tucson’s Industrial space availability decreased to 2.7%, equivalent to 1.1 million sq. ft. of space at the end of Q1 2023. Availability in the Airport submarket declined to 3.7% with multiple large new leases. The Northwestern submarket’s availability rate of 2.9% was slightly higher than the Tucson average, but the submarket remains a sought-after submarket due to interstate access and proximity to Phoenix. Space available in the Southeast submarket remained scarce, with 1.3% available.

Tucson’s total vacancy declined to 2.5% in Q1 2023 with 1.0 million sq. ft. of vacant space. The vacancy rate in the Airport submarket had a quarter-over-quarter decrease of 20 basis points to 3.5% while the Northwest submarket vacancy increased 80 bps to 2.8%. The Southeast submarket vacancy remained tight at 1.2% and remained a desirable market for distribution and manufacturing operations.

Lease Rates
The direct average asking NNN lease rate increased $0.19 year-over-year to $0.87 per sq. ft. in Q1 2023—a 28.4% increase year-over-year. Asking rates within the Southeast submarket increased to $0.78, which represented the most notable rate change. Decreased availability in this submarket continued to put upward pressure on asking rates. The Airport submarket recorded a minor increase in NNN asking lease rate at $0.83 per sq. ft. With an average asking lease rate of $0.72 per sq. ft., the Northwest submarket offers tenants a cost-efficient and geographically advantageous option.

Net Absorption and Leasing Activity
The Tucson industrial market had 191,465 sq. ft. of positive net absorption in Q1 2023, driven primarily by the Southeast and Airport submarkets. The Southeast submarket recorded 171,357 sq. ft. of net absorption. The Airport submarket recorded 101,774 sq. ft. of leasing activity, with a 65,303 sq. ft. lease signed by Cactus Portable Storage and an owner-user building acquisition at 2425 E Medina Rd. The Southwest submarket recorded a notable 65,250 sq. ft. warehouse leased by Pima County.

The West Central submarket offset the positive net absorption in the market due to the 60,000-square-foot move out of Sam Levitz Furniture Company. The Northwestern submarket followed closely behind with 52,576 square feet of negative net absorption.

Development Activity
No projects were delivered in Q1 2023, but construction continued for the 1.8 million sq. ft. of industrial product. The 946,415 square feet from buildings 1 and 2 of the Southern Arizona Logistics Center made significant development progress in the Northwestern submarket and are expected to deliver in Q2 2023. The 40,000-square-foot Campbell Landing project is near completion as well. The four-building project will serve a much-desired space requirement for tenants looking to fill up to 10,000 square feet. The 806,000-square-foot Tucson Commerce Center in the Airport submarket is expected to deliver in late 2023. Many projects, such as the remaining Southern Arizona Logistics Center buildings, I-10 International, and the newly announced Southern Arizona Regional, remain planned and await construction start dates.

Outlook
The Tucson industrial market has had several quarters of consistent growth and these trends are expected to continue in subsequent quarters. With sustained record low vacancy and a
strong construction pipeline, Tucson is expected to capitalize on tenants looking to establish or expand operations in the Sun Belt. Prospective projects like American Battery Factory’s new
manufacturing facility, going in at the Pima County Aerospace Campus near Raytheon, will continue to place the spotlight on Tucson as an optimal manufacturing location further sustaining demand.

Read full Industrial Report Q1 2023 here.

SAHUARITA, AZ, April 14, 2023 – Sahuarita Take 5, LLC purchased a 34,332-square- foot vacant parcel of land located at 1215 W. Duval Mine Road, Sahuarita, AZ in the Sahuarita Palms Plaza shopping center for a Take 5 Oil Change store.

The purchase price was $600,000 ($17.50 PSF) and the transaction closed on March 29, 2023.

Craig Finfrock of Commercial Retail Advisors, LLC represented the seller, CRI Sahuarita Palms Plaza II, LLC, and the buyer, Sahuarita Take 5, LLC, represented itself in this transaction. Commercial Retail Advisors, founded in 2001, specializes in the leasing and sales of shopping centers and retailer tenant representation throughout southern Arizona. For more information, please contact Craig Finfrock of Commercial Retail Advisors at (520) 290-3200 or visit their website at www.cradvisorsllc.com.

To learn more, see RED Comp #10592.