Cushman & Wakefield | Picor reports as a result of steady, organic recovery and job growth, surplus and sublease office space in the Tucson market has largely shaken out. Overall market vacancy hovered around 12.0% for six solid years. At its current 11.5%, Tucson office vacancy is at the lowest point since Q4 2009. The data reveals a strong differential between older and newer buildings, with those built prior to the new millennium sitting at 13.9% vacant, and those built since 2000 enjoying a much healthier 6.0% vacancy. Absorption for the year is on pace to exceed the prior two years, standing at 289,278 square feet (SF) through the end of Q3.

Sales activity in 2016 has not been for the faint of heart. Pricing, cap rates, financing and valuations have varied widely, primarily due to disparate motivations. The distressed seller would accept almost any price, while at the other extreme, some buyers pay a premium for that “right” property or investment.  Prices paid by users varied widely, often for similar properties in the same development. Cap rates ranged from the low 6% to the high 10% range.

Tower cranes are active across the market with office, health-care, and hospitality projects well underway. Specific to office, buildings are under construction for the Girl Scouts on Broadway, at Puente Nuevo on Ft. Lowell and Marana Health Center in Dove Mountain. With a segment of the office stock functionally obsolete, many older properties may be destined for demolition, consistent with the trend toward desirability of newer spaces.

ECONOMY
Greater Tucson was recently named the third fastest-growing metro area over 500,000 population by Bloomberg, with July year-over-year job growth of 4.2% in July, 2016 and total employment of 378,050. The national housing recovery has improved Tucson’s prospects for population growth and is expected to spur construction. Arizona was the only state in the U. S. to experience month-over-month construction job gains in July 2016, and was one of three states to report year-over-year growth. Nationally, September consumer confidence was at the highest level since 2007.

OUTLOOK
Tucson is gaining attention for all the right reasons, on the heels of recognition as a top city for millennials. The food scene has garnered national acclaim after being named the U. S.’s only UNESCO City of Gastronomy. Three Tucson schools were ranked in the top 25 by U.S. News & World Reports. Tucson’s existing businesses, both large and small, have been quietly growing headcounts and have arguably accounted for the Tucson region’s path to vibrancy over 24 months. Recent hiring and growth announcements will add future positive impact. Planned hiring by Caterpillar (600 jobs), Worldview (448), ADP (400), C3 (1,132), Samsung SmartThings (80), and Tucson Medical Center (61) combine for a forecasted economic impact of over $3 billion. And other announcements have occurred, with more expected. The momentum is palpable, and the outlook is extremely positive for Southern Arizona.

To read full report click here.

By: Barbi Reuter, COO, Cushman & Wakefield | PICOR

Positive momentum accelerated in the Tucson industrial market during the second quarter, with vacancy improving to 8.6% on positive net absorption of 252,815 square feet (SF). After peaking at 13.4% 3Q 2011, market-wide vacancy improved to its lowest post-recession level, not reporting a sub-9.0% rate since 2008. Many projects reached full occupancy, with multi-tenant inventory inconsistently available. Of note given its nearly two million SF footprint, the UA Tech Park saw activity bringing its vacancy down to 2.0%.

Economy
Preliminary Bureau of Labor Statistics data reported that Metro Tucson added 15,636 jobs year-over-year through May 2016, with total employment of 455,312 and an unemployment rate of 5.0%. With recent high-quality jobs announcements and expansion by current employers, the forecast is for continued improvement.

Economic optimism and consumer confidence were more-widely present, jump-started by Caterpillar’s decision to locate downtown, forecasting creation of 600+ jobs at an estimated economic impact of $600 million. Tucson’s steadily improving market performance was enhanced by this announcement and others, like the Comcast opening, new air service, and downtown activity including attraction of pro hockey, and retail, residential and hotel construction, both planned and underway.

Market Overview
While the mining sector was still impacted by market pricing, homebuilding and construction both experienced growth locally. Business confidence was also evident in longer lease terms (up to five years) and owner investment in tenant improvements. Non-traditional space uses continue to be found in local activity, from breweries and distilleries to health and fitness uses and entertainment venues. That being said, growth was driven by broad-based, organic small business activity.

Sale volume second quarter totaled $11.7 million versus $8.5 million 2Q 2015. At $60 per square foot (PSF), the average sales price year to date outpaced 2015 pricing of $54 PSF. Clairemont Plaza represented the quarter’s largest sale, a $3.65-million multi-tenant industrial park sold for $54 PSF with 45.0% vacancy.

Outlook
With upward pressure on rents likely occurring at a threshold vacancy of 8.0%, we forecast improvement in Tucson’s industrial rental rates and sale prices early in 2017. Money Magazine recently ranked Tucson #4 for millennials. Combined with a growing food and entertainment scene, our employment growth prospects appear strong.

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