Just as Arizona State University construction projects are springing up around the Valley, the same can be said for the University of Arizona down the interstate in Tucson.
And just as ASU’s building bonanza is touching all parts of the Valley, UA’s growth is being felt all over Tucson.
• Old Main on the UA campus is undergoing a $13.5M facelift by Sundt Construction.
• The North End Zone at Arizona Stadium is getting a $72M renovation; Mortenson Construction is the GC.
• The Junction at Iron Horse will be a $10M, 232-bed off-campus student housing complex near the UA campus. Adolfson & Peterson Construction is the GC.
• A $196M, 4-mile modern streetcar line connecting the UA campus to the 4th Avenue commercial district, downtown and the redevelopment area west of downtown is under construction.
“The strengths of being a university town is the integration with the University of Arizona,” says Pam Sutherland, economic development director with the Downtown Tucson Partnership. “A modern street car line will link UA to downtown and change the entire dynamic. UA has classes downtown. And UA has student housing downtown. This really is the right relationship we need to have with the people from UA. Developers know that, and they know what future development looks like.”
Because of UA, Tucson also is becoming a hotbed for bioscience and biotech. Speaking before the Arizona Association for Economic Development, UA President Ann Weaver Hart touched on the disciplines that she says will ensure a successful partnership between higher education and the economic development community in Arizona.
“Knowledge-based graduates are poised to make an incredible impact on the well being of our state,” she says. “At UA, we’re rethinking our role in higher education and integrating with what you (economic developers) do.”
She stressed the importance of engaging knowledge throughout the curriculum, including such UA colleges as architecture and planning, arid land studies and the school of mining.
UA’s crown jewel is the 65-acre Bioscience Park in central Tucson. Its eastern boundary sits along Kino Parkway, one of the major north/south transportation corridors in Tucson. The Bio Park is 2 1/2 miles from the main campus, 4 miles from Tucson International Airport and 3 miles from Downtown Tucson. It’s within a 5-mile radius of 40 biotech companies, including three major research hospitals.
Designed as an urban park, it eventually will accommodate more than 3 MSF of development, from single-story to six-story buildings.
“I am a committed believer in the economy,” Hart says. “Of the higher education institutions in the state, and we have three great universities, we are just cracking the surface of the relationship of the (higher education) system and economic development. We can be great partners with you to create that wonderful future.”
Higher education, she says, is adding $8.3B to the economy of this state — just in direct economic impact.


The multi-family market that’s blazing in the Valley also is quite active in Tucson. Leading the charge is HSL Properties with its luxury Encantada developments. HSL just completed the 272-unit Encantada Dove Mountain. HSL’s 288-unit luxury complex Encantada at Steam Pump, recently broke ground.
“We are continuing to look for opportunities both here and in Phoenix,” says Omer Mireles, executive vice president at HSL. “This is a select submarket we’re in, and there’s quite a bit of supply coming on line — this also includes student housing.”
Mireles attributes Tucson’s multi-family spike to what occurred during the recession. Or actually, what didn’t occur during the recession, and that was the construction of new units.
“During the recession there was pent up demand in Phoenix,” Mireles says. “Here in Tucson, even before the downturn, there was very little new construction. There is an opportunity to build now to serve a demand that will be there for some time. “
As is the case in the Valley, Tucson is delivering high-end apartments to a highly mobile, younger demographic. However, Mireles cautions that the notion of the “birth of the renter nation” may be just that — a notion.
“Consumers are still deeply engrained in buying their own home,” he says.
As far as the housing market in Tucson, Mireles says the Old Pueblo didn’t see the amount of problems that affected the Valley during the housing crisis.
“Demand has been incredible out here in certain submarkets, but pretty soft in others,” Mireles says. “The northwest market (where most of HSL developments reside) is very strong.”

Brokerage report

• Office
“In the past we reported signs of life in the Tucson office market. Now, with some certainty, we can say that we have a pretty strong pulse and other vital signs are improving. Based on the current level of market activity, this has been verified by all of the PICOR office agents and we’re hearing the same from the other active Tucson brokers. By no means does this indicate a complete recovery, but it does indicate that we’re on the right path.
“After hovering around 12% vacancy for that last several quarters, we expect that we’ll start to see a slow reduction in available space.  In order for this to happen, Tucson will need to see more job creation, and we seem to be poised for that.  Based on some of the new office space requirements from existing businesses, as well as inquiries from businesses looking to locate in the Tucson market, we are optimistic that we’ll start to see some of these needed jobs.
“In addition to more jobs, we’ll also need to see the national, state and local economies continue their path to health, along with some more certainty and better understanding of what to expect from the implementation of the new health care regulations.  The far reaching effect of these two areas will absolutely determine how much and how quickly our local office market continues to improve.” — Thomas J. Nieman, SIOR, Principal, PICOR

• Multi-family
“The multi-family market fundamentals continue to slowly improve in Tucson with absorption and rental rates slowly increasing and vacancy declining. According to Apartment Insights / REAL DATA, citywide vacancy stood at 9.44% and average rent at $631 per unit for the first quarter 2013. Both are improvements from Q4 2012. The Class A sector of the market is much stronger than class C properties with citywide vacancy for A properties averaging 7.7% while C property vacancy remains at approximately 13.3%.  Downtown and University area submarkets remain the strongest markets and are benefiting from the Tucson Modern Streetcar and the revitalization of the downtown area.
“New apartment construction, both student housing and standard market rate, has returned after a few very soft years. Deliveries for 2012 totaled 1,062 units, of which 206 units were student housing. Currently there are 1,648 units either under construction or recently completed. Expected unit completions in 2013 total approximately 1,180 with 555 being student housing.  The student housing market at the University of Arizona is going through big changes with over 1,000 units and over 3,000 beds being delivered between 2012 and 2014. The new student properties offer a level of quality, access and amenities not seen previously at the University of Arizona.” — Bob Kaplan, Principal, PICOR

• Industrial
“The trajectory of the Tucson industrial market is clearly an improving one. After two quarters of strong absorption (Q4 2012 and Q1 2013), 150,000 and 166,000 square feet (sf) respectively occupancy of industrial space as improved from 88% to 89%. Q2 2013 should be very strong with absorption in the range of 400,000 sf. The consolidation trend Tucson saw for the past several years is clearly over, and positive absorption has taken hold.
“A balanced market between what is available and occupancy demand will occur at an occupancy level of 92%. Although a vacancy rate of 8% seems relatively high, the Tucson market contains many older less functional spaces that do not compete well for tenants. At this point in the market, we expect to see rents increase. At the current pace, we expect this to happen in the next 12 to 18 months.
“Once rents increase, tenants often become interested in buying, and in time, building and land values should improve as well. We may even see developers, who have been dormant in the market for several years, contemplating new projects.”
— Rob Glaser, SIOR CCIM, Principal, PICOR.