TUCSON, ARIZONA, July 19, 2023 -- The Tucson industrial market had healthy leasing activity with 415,430 sq. ft. of gross absorption. The market saw significant move-in activity despite a downturn in overall net absorption.
Under-construction projects in the Northwest and Airport submarket that were anticipated to deliver this quarter have not yet materialized, which helped keep vacancy rates
somewhat stable. Lastly, the direct average asking NNN lease rates declined slightly to $0.85 per sq. ft.
- Vacancy increased 50 basis points (bps) quarter-over-quarter to 3.0% in Q2 2023.
- The industrial market saw 415,430 sq. ft. of gross absorption, where the strongest activity occurred in the Airport, Northwest, and Southeast submarkets.
- Overall net absorption turned down in Q2 2023 to -216,740 sq. ft.
- Construction activity remained flat with 1,793,041 sq. ft. under construction and no deliveries in Q2 2023.
Availability and Vacancy
Industrial space availability increased 100 bps to 3.7%, equivalent to 1.5 million sq. ft. of space at the end of Q2 2023. Availability in the Airport submarket jumped 270 bps to 6.4%. The North Central submarket saw availability cut in half down to 2.7%, the most significant decline in the market for the second quarter. Most other submarkets had slight upticks in availability or remained essentially flat. The Southeast and West Central submarkets held the lowest availability rates in Tucson at 1.7% and 1.9%, respectively. Conversely, the Northeast submarket had the highest availability rate for another consecutive quarter at 11.4%.
Tucson’s total vacancy increased 50 bps to 3.0% in Q2 2023 with 1.2 million sq. ft. of vacant space. The overall market remained tight on vacant space, indicating stable industrial demand relative to inventory. The vacancy rate in the Airport submarket jumped 240 bps to 5.9% as nearly 300,000 sq. ft. of vacant space entered the market. The East Central, Northeast, and Northwest submarkets also saw a combined 10,000 sq. ft. of new vacant space. Sub-1.0% vacancy rates were recorded in both the Southeast and Southwest submarkets.
Lease Rates
The direct average asking NNN lease rate declined slightly to $0.85 per sq. ft. in but remained up 21.2% compared to one year prior. Asking lease rates remained largely stable across submarkets. After a notable jump in Q1 2023, the average asking rate in the Southeast submarket turned down by $0.15, reaching a market-wide low of $0.62 per sq. ft. The relatively small Northeast submarket again held the highest average asking rate at $1.41 per sq. ft. Low vacancy continued to bolster asking rate growth. Still, the Tucson market remained a highly competitive and geographically advantageous locale for industrial users.
Net Absorption and Leasing Activity
The Tucson industrial market captured 415,430 sq. ft. of gross leasing activity in Q2 2023. However, overall net absorption turned down by -216,740 sq. ft., driven primarily by new large vacancies in the Airport submarket. Leasing activity was strongest in the Airport, Northwest, and Southeast submarkets. Just three submarkets saw positive 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.
Development Activity
Tucson industrial development remained steady for a second consecutive quarter with no deliveries and 1.8 million sq. ft. under construction. A handful of projects are expected to deliver in Q2 2023 was delayed slightly but continued to make progress. Expect to see new deliveries in the latter half of the year. This includes 946,415 sq. ft. at the Southern Arizona Logistics Center, 40,000 sq. ft. at Campbell Landing, and 806,000 sq. ft. at Tucson Commerce Center. The industrial pipeline is strong, with other planned projects at the Southern Arizona Logistics Center, I-10 International, and the Southern Arizona Regional awaiting groundbreaking.
Outlook
Tucson Industrial has remained stable through the first half of 2023 with near-flat net absorption, minimal change in asking lease rates, steady leasing activity, and a humming
development pipeline. With steady tenant demand and low vacancy, these trends will continue through the latter half of the year. As high growth and development
continue throughout the Sun Belt, Tucson is expected to capitalize on tenants looking to leverage advantageous geography and competitive affordability.
Go to Tucson Industrial Market Q2 2023 for full report.