At 2014's midway point, the Cushman & Wakefield | Picor retail market report for Tucson reports positive performance, with the winds continuing to blow in the direction of retail sails / sales.
In summary, a lower unemployment rate for the Tucson area than at year ago and decreased government spending both impacted Tucson’s retail market momentum and activity. Home prices were flattened in Q2, while the inventory of Tucson residential listings increased.
Retail sales statewide were up 7.6% over the prior May, with strength in durable goods, increasing to 8.0%. In addition to durable consumer goods, building material sales jumped significantly year-over-year, and overall retail sales outpaced employment growth.
Market fundamentals continued to improve as supply tightened. Second quarter positive net absorption of 129,159-square-feet represented the ninth consecutive quarter on a positive trajectory. At 6.5%, vacancy reached its lowest mark since Q4 2008, a predictor of slowing absorption. Continued market firming put upward pressure on asking rents, which increased 2.3% over the previous quarter to $14.52 PSF.
Activity and absorption for the quarter was markedly more distributed and diverse. That being said, of the market’s largest true retail leases, second quarter activity trended toward automotive uses and discount retailers.
Downtown saw a key puzzle piece solidified with its first specialty food market signed: The 5,000-square-foot Johnny Gibson Downtown Market in the heart of the entertainment district; and Mattress Firm’s acquisition of Bedmart will likely result in future store consolidation and availabilities.
The first quarter saw the opening of a 99,594-square-foot Walmart at Houghton Town Center. New construction includes the redevelopment of Broadway and Wilmot by a local developer where demolition has begun for phased rebuilding. A new-to-market Cheddar’s is being built at El Con Mall in midtown and is expected to put pressure on other restaurants in the sit down family category.
El Con Mall sold in the second quarter representing a significant investment transaction for Tucson at $81.7 million. With pent up demand, it is a great time to be a seller. Cap rates and interest rates are low, and appetite is high for retail investment property, both single tenant and multi-tenant. Multiple offers are the norm, and values are increasing. User purchase activity remains relatively quiet.
Downtown Tucson will continue to shine brightly for development and absorption, with the late July opening of the Modern Streetcar and the return of student residents. We expect new construction to increase as Tucson approaches a stabilized vacancy rate; particularly if consumer confidence continues to improve. Look for continued stabilization and gradually increasing rental rates. Supply of investment grade property may remain limited, but demand will be high from investors when sellers are ready to divest or trade.
To read the full Cushman & Wakefield Retail Market Report click here: https://picor.com/wp-content/uploads/2014/08/Tucson_RET_2Q14.pdf