What’s Happening in the Tucson Office Market?

By Rick Kleiner  in The Trend Report, October 2024 Edition

(Oct. 10, 2024) — As we consider the state of the Tucson office market, I’m reminded of the famous quip by a very-alive Mark Twain when he read unfounded stories of his demise, “The reports of my death are greatly exaggerated.” Certainly, the Tucson office market has been impacted by the advance of hybrid work and current economic headwinds. That said, I think there are both challenges and opportunities for owners, tenants, investors, and brokers.

The following ready-to-send tweets provide my snapshot of key trends:

This image shows two tweets: Tweet 1: Tucson's office market remains resilient! Landlords are offering flexible lease terms and significant tenant improvement allowances to attract tenants for larger office spaces. Adaptability is key in today's market! #TucsonLandlords #CRE Tweet 2: Central Tucson, Northwest Tucson, and the Foothills are hot spots with strong demand for smaller office spaces and medical buildings. Competitive pricing and strategic locations are essential for success. #TucsonOfficeMarket #CRE

 

In my current experience I’m finding that landlords are employing a variety of creative strategies influenced by hybrid work models to market office space. These strategies aim to attract tenants despite the challenges presented by increased vacancy rates and changing tenant requirements, including:

  • Flexible Lease Terms: Landlords are increasingly providing flexible lease terms to attract tenants. This includes shorter lease durations, which are more appealing to companies uncertain about their long-term office space needs due to hybrid work arrangements.
  • Significant Tenant Improvement Allowances: Landlords are offering substantial tenant improvement allowances coupled with 7- and 10- year lease terms.
  • Targeting Medical Tenants: In light of the strong demand for medical offices, landlords are targeting medical tenants who are often willing to undertake conversions themselves or agree to longer lease terms.
  • Enhanced Amenities & Services: To differentiate their properties landlords are enhancing the tenant experience with improved common areas, on-site fitness centers, advanced technological infrastructure and other features that support a hybrid work environment.
  • Highlighting Location Benefits: Landlords are emphasizing the benefits of their properties’ locations, particularly in high-demand submarkets such as the Foothills, Central and Northwest Tucson.

 

Tweet 3: Medical office spaces are in high demand in Tucson! Limited supply and rising construction costs are driving premium prices for turnkey properties. Great opportunities for investors! #MedicalOffice #CRE #Tucson Tweet 4: Larger office buildings are seeing discounted prices, while medical properties continue to rise. High industrial demand is leading to the return to inventory of former call centers. This market dichotomy offers unique opportunities for different investor strategies. #CRE #TucsonMarket

 

In looking to the future, the Tucson office market is navigating the challenges posed by hybrid work with a stable yet evolving landscape. I’ll close by paraphrasing Mark Twain that the Tucson office market is alive, adapting and resilient! I look forward to another exciting year ahead.

 

Tweet 6: Local economic trends are moving in the right direction. Q2 2024 saw a modest employment growth of 0.9% and a drop in the unemployment rate to 3.4%. The median household income rose by 4.5%, boosting local consumer spending. Tweet 7: Tucson continues to outperform larger cities, remaining less affected by broader macroeconomic trends. These trends signal sustained growth and a stable employment environment. #TucsonEconomy #CRE

 

 

Professional photo of Rick Kleiner

Rick Kleiner is a shareholder of Cushman & Wakefield | PICOR and specializes in the sale, leasing and investment of office and medical properties. Rick is distinguished by his extensive sales background and related education, including his MBA from the University of Arizona. Rick has been the Top Office Division Producer for the past fifteen consecutive years and amongst the company’s top three annual producers for ten of the past fifteen years. Rick was awarded C & W | PICOR’s 2019 President’s Award for Excellence in recognition of his role in company leadership. Rick is a five-time winner of the annual Commercial Real Estate Competition among all Tucson office brokers sponsored by the Southern Arizona CCIM Chapter. Rick has been associated with C&W | PICOR since undertaking his commercial real estate career in 1995. Prior to this affiliation, Rick served as Vice President of Marketing for Up With People, the international not-for-profit organization. Rick is married to Jan Miller, a Tucson native. They are the parents of Sam, an attorney in, Washington DC, and Emma, an attorney practicing with the University of Arizona Office of the General Counsel, in Tucson AZ. Rick Kleiner can be reached at rkleiner@picor.com.