1650 E. River Road
Commercial Real Estate in Tucson Appears to be Slowing
Tucson’s commercial real estate market seems to be slowing along with the rest of the economy. All sectors (retail, office, apartment, and industrial) seem to be in line to see slowdowns in expansion (new construction). Higher vacancy rates are expected as well.
Though retail real estate should start to see slowdowns due to the overall weakening economy, I do see Tucson holding up better than many other areas of the country. Its growing population puts direct demand on all sectors of real estate. Large retailers, however, will be very cautious about taking on new space. Smaller retailers feeling the pinch will most likely look for concessions from landlords to help get them through if the downturn is more severe than predicted.
Office space in Tucson seems to be in decent shape, though vacancies were up 13.4% in 2007. There are still some large vacancies, most notably one vacated on Wilmot and 5th St. New tenants are needed for several other offices that were vacated by now-defunct mortgage companies and other real estate related industries. Otherwise, the office market seems strong, and 2007 should be a blip on the radar screen. Look for the office market in Tucson to be poised for strength.
Raw land prices in Tucson have been hard hit for the past two years. Most homebuilders — if not all — large and small, have stopped buying land and are trying to weather the strong residential downturn as well as possible. Along with the rampant speculation in homes during the boom, there was also a great deal of pure speculation in Tucson land. There are currently many, many small parcels (10 acres and less) for sale all over Tucson. A good deal can be arranged assuming the buyers have cash available. Land purchases typically require 30%-50% down.
The industrial market seems to be strong currently. The Rockefeller Group obtained 22 acres near Tucson International Airport to develop a new industrial center. This industrial center will house a Target Corporation distribution center for Target.com for the entire western United States. A key industry that is emerging in Tucson is solar energy technologies. These new companies are leasing considerable amounts of industrial space and paying high premiums to do so. If the solar technologies continue to grow (which seems a sure bet with oil and other energy prices at current levels), the solar industry may be a large growth machine in Arizona — specifically in Tucson and Phoenix. Since Tucson is one of the most sun-drenched areas in the world, it is an obvious base for the development of solar technologies.
Apartment rentals are feeling the pressure from the sagging real estate market. Many would-be sellers are unable to sell their homes, and so they attempt to rent them out. With so many of those homes in competition with each other, rents are incredibly low. Potential tenants can rent homes for the same or just a little more than an apartment would cost. For the rest of 2008, I cannot see anything changing this situation for the local apartment complexes in town. After the residential side picks up just a little life, some of these homes will be absorbed and slowly sold off. This will help apartment rental rates to increase substantially.