TUCSON, ARIZONA - CBRE is reporting the retail market began 2021 strong with improvement in net absorption and vacancy rates holding steady. However, uncertainty continues as vacancy rates remain down 8.1 percentage points from a year ago. Aside from the last four quarters, the current Tucson retail vacancy rate remains the lowest since Q4 2016. The rolling average over four quarters sits at 8.0%.
Tucson retail market continued a trend of improvement in net absorption for the third consecutive quarter, starting the first quarter of 2021 with -3,285 sq. ft. While there were more move-outs in the market than move-ins, the first quarter showed significant improvement over the fourth quarter of 2020, which ended net absorption at -39,192 sq. ft.
Tucson retail vacancy decreased quarter-over-quarter to 8.3%, down from 8.4% in the prior quarter. This was also 1.2 percentage points higher than the first quarter 2020, when the vacancy rate was 7.1%. Construction has been stagnant for several quarters, forcing tenants to look at existing space available in the metro. With grocery stores leading leasing in Tucson, the trend of redevelopment of former big box spaces will have continued interest in the Tucson market.
NET ABSORPTION
Net absorption was negative in the first quarter of 2021totaling -3,285 sq. ft. This marked the third consecutive quarter in which net absorption was negative. While an improvement over the prior quarter at -39,192, this was still considerably lower than the first quarter of 2020 (year ago), which posted a net absorption of 97,498 sq. ft.
The Central submarket drove negative net absorption in the first quarter with -28,704 sq. ft. This was followed by the West at -15,951 sq. ft. Among property types,Neighborhood centers drove much of the negative net absorption in the first quarter with -27,232 sq. ft. These negative readings were offset by positive net absorption in two submarkets, Southwest at 25,906 sq. ft. and the Northwest at 22,630 sq ft.
ASKING LEASE RATES
The average asking lease rate in Tucson ticked up to$16.03 NNN per sq. ft., an 1.0% increase from the prior quarter. Year-over-year the average asking rates were down8.1%.
The Central, Southeast and Southwest recorded increasing average asking lease rates at $15.71, $18.41, and $13.70,respectively.The Northeast, Northwest and west submarkets posted modest decreases in lease rates compared to the fourth quarter of 2020 at $15.08, $16.37and $20.04, respectively.
VACANCY
The year-over-year market-wide vacancy rate was up 120basis points over the first quarter of 2020 which was8.3%. Vacancy rates for the Southwest and Southeast submarkets had the lowest at the end of the fourth quarter in metro Tucson at 4.5% and 5.7%, respectively. These submarkets consistently have a healthy retail economy attributed to the demographics and housing density. The submarkets that had the highest vacancy were the Central and Northeast submarkets, which ended the third quarter at 15.7% and 10.4%, respectively.
CONSTRUCTION ACTIVITY
Construction activity has been stagnant due to the rise in available big-box space which has provided additional options for tenants looking to expand. The Tucson retail market is completely user driven as new supply will be limited to build-to-suit development.
OUTLOOK
Gloomy economic conditions inspired many governors to ease lockdowns during the second half of the 2020. Rollout of vaccines in 2021 has added new life to the retail market, inspiring a resurgence in consumer confidence and spending activity. Many retailers are now fully open. These reopenings have energized activity across the country. There was already an improvement in retail activity from the third to the fourth quarter of 2020, and we have seen this trend continue into the first quarter 2021 as net absorption inches closer to positive and vacancy rates begin to fall. Many tenants still need space and are backed up against lease expirations. In the near-term, look for many short-term renewals to dominate the market as tenants pause on big decisions. However, Tucson continues to be a target location for many companies across the U.S. as business-friendly laws and a large supply of diverse labor make the metro attractive to major-users. Recent job announcements by Amazon, CIS Global and Edmund Optics are an example of this positive trend.
Read full report here - Tucson Retail MarketView: https://www.cbre.us/research-and-reports/Tucson-Retail-MarketView-Q1-2021