Positive signs bolster Tucson office market, as well as the area’s retail and industrial sectors

CBRE has released its third quarter 2011 market analysis of the Tucson area office, industrial and retail sectors. Report highlights include:

Office

•    The Tucson office market reported a stronger third quarter, with 71,209 square feet of positive absorption. This compares to 30,786 square feet of positive absorption in the second quarter and 22,028 square feet of negative absorption in the first quarter.

•    The Tucson office market vacancy rate declined in the third quarter, dropping 80 basis points to 17.1 percent. The area’s lowest vacancy was reported in the North Central and West Central submarkets, which both have rates of 13.6 percent. The highest vacancy rate, 27.4 percent, was found in the Southwest submarket.

•    The average asking lease rate for existing multi-tenant office space decreased for the first time this year, falling to $19.26 per square foot from $19.65 per square foot at the end of the second quarter and $19.43 at the end of the first quarter.

•    There will be no new speculative office construction in the Tucson market until demand picks up and the abundant supply of available space goes down.

Industrial

•    Vacany among industrial product declined for the first time in 2011, falling to 11 percent from 11.3 percent at mid-year. While only a 30 basis point drop from the previous quarter, this represents a 60 basis point decline in the past 18 months.

•    The industrial market recorded 121,971 square feet of positive absorption in the third quarter. Although a strong showing, this could not completely ease the occupied space lost in the first and second quarters, leaving the market with 26,996 square feet of negative absorption for the year.

•    The average asking industrial lease rate dropped significantly – 17 cents – to end the third quater at $6.25 per square foot. This compares to $6.62 per square foot at the end of the second quarter and $6.64 per square foot at the end of the first quarter.

•    With much of Tucson’s industrial product aging and functionally inefficient, any improvement in the economy will quickly lead to new construction, driving up lease rates and sales prices.

Retail

•    Tucson’s shopping center market recorded its second consecutive quarter of positive absorption with 34,629 square feet. This combined with the absorption through mid-year brings the market’s year-to-date total to positive 6,989 square feet.

•    The vacancy rate among shopping centers decreased in the third quarter, albeit modestly, to 12.2 percent from 12.3 percent at the end of the second quarter. Yet, vacany remains unchanged from mid-year 2010 when the rate was also 12.2 percent.

•    The average asking lease rate for shopping center space increased for the third time this year, rising to $18.30 per square foot from $17.71 per square foot in the second quarter and $17.64 per square foot at the end of the first quarter. This hike in the market’s average rental rate has been driven, in part, by an uptick in activity and demand in prime retail hubs.

•    Big box tenants and national retailers continue to vie for premium sites in high-traffic trade areas, while sites on the periphery wane in activity.

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Visit CBRE’s website at www.cbre.com for more information about the 3Q analysis of the Tucson office market, as well as the area’s industrial and retail sectors.

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