According to recently released reports from Cushman & Wakefield | PICOR, the Tucson commercial real estate market continues to see widespread activity across all markets at various levels. These quarter two reports analyze business in the multifamily, industrial, retail and office markets. The cliff notes version of the Q2 reports from Cushman & Wakefield | PICOR reports can be found below.
ECONOMIC OVERVIEW
Preliminary United States Bureau of Labor Statistics data reported Metro Tucson added 15,636 jobs year-over-year through May 2016, with total employment of 455,312 and an unemployment rate of five-percent. With recent high-quality hiring announcements and expansion by current employers continued improvement is forecasted in the region. Economic optimism and consumer confidence were more-widely present, jump-started by Caterpillar’s choice of Downtown Tucson in which to locate and create a forecasted 600-plus jobs at an estimated economic impact of $600 million.
MULTIFAMILY
Tucson’s multifamily market experienced minimal change from the previous quarter.
The vacancy rate for stabilized units in Tucson increased two basis points from the previous quarter to a rate of 6.83 percent. This figure is very encouraging, given the seasonal nature of the Tucson apartment rental market. Many residents leave for the summer, escaping extreme heat, along with many students returning home. This is the lowest second quarter vacancy rate reported since 2006.
Absorption decreased 29 units over the second quarter. The average monthly gross rent (without utilities) increased $5 (0.75 percent) to $674 per unit or $0.91 per square foot for the second quarter.
The overall economic market has been improving in Tucson and notable optimism has spread throughout many of the owners, investors and property management companies. Cushman & Wakefield | PICOR expects to record continued slow growth over the next few years.
INDUSTRIAL
Positive momentum accelerated in the Tucson industrial market during the second quarter, with vacancy improving to 8.6 percent on positive net absorption of 252,815 square feet.
After peaking at 13.4-percent in 3Q 2011, market-wide vacancy improved to its lowest post-recession level, not reporting a sub-nine-percent rate since 2008. Of note given its footprint of nearly two million square feet , the UA Tech Park saw activity bringing its vacancy down to two percent.
Sale volume second quarter totaled $11.7 million versus $8.5 million 2Q 2015. At $60 per square foot, 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 percent vacancy.
RETAIL
The Tucson retail market has remained relatively stable in the second quarter.
Vacancy dropped by 0.2 percentage point from 1Q to 6.4%. Net absorption has remained steady and positive over the last two quarters.
Real Estate Daily News reported over 96,000 square feet of new retail inventory broke ground at Tucson Marketplace, including a 53,678-square-foot Cinemark Theatre, a 12,550-square-foot Lin’s Chinese Buffet and a 30,000-square-foot Dave & Buster’s. Tucson Premium Outlets’ summer openings included Journey’s, VF Outlet, Famous Wok and Johnny Rockets. Three Sports Authority stores in the Tucson Metro area closed, as part of the national bankruptcy liquidation.
Sales activity in the second quarter included 34 sales, 11 of which were sales over $1 million. With $42.2 million in total sales volume this quarter, the average sale price was $109.11 per square foot. The quarter’s largest sale was the 76,240-square-foot freestanding Burlington Coat Factory at 3660 S. 16th Avenue which sold for $7.5 million.
OFFICE
The gradual improvement in office market metrics continued; positive year-to-date absorption of 205,301 square feet brought overall market vacancy down to 11.8%.
Existing and new call center requirements were present in the market, as well as interest for medical, behavioral health and ancillary health care uses. The pace of lease inquiries increased in the second quarter. Annual rent increases may be 4-5% in order to regain appropriate returns.
Office projects under construction included a 15,000-square-foot speculative building on River Road in the Foothills submarket, and conversions of former retail space to medical uses including urgent care at River/Stone and TMCOne clinic space at Broadway/Harrison.
Office building sale volume was up slightly over the previous quarter at $12.54 million and was fairly evenly split between investor and user purchases. Medical practices continued to be a bright spot in the user arena, and buyers continued to seek discounted product, given favorable lease rates in the market.
