Tucson Market Continues to Show Upward Trend

Even though decreased government spending impacted both momentum and activity in Tucson’s real estate market, employment in the metropolitan area is showing a promising tendency. The 5.8 percent unemployment rate at the year’s midway point was 0.6 percent lower than just six months ago, and real estate market fundamentals looked similarly encouraging.

Even though decreased government spending impacted both momentum and activity in Tucson’s real estate market, employment in the metropolitan area is showing a promising tendency. The 5.8 percent unemployment rate at the year’s midway point was 0.6 percent lower than just six months ago, and real estate market fundamentals looked similarly encouraging.

Multi-Family Vacancies Drop Despite Active Construction Pipeline

Tucson graph - multifamilyHome prices, net apartment rents and inventory flattened in the second quarter of 2014, while absorption improved, helping vacancy rates, according to Cushman & Wakefield. In all, 235 units were absorbed in Metropolitan Tucson over the first six months of the year, and the overall vacancy rate dropped 28 basis points to 9.05 percent. Sales averaged $639 per unit and $0.86 per square foot. In the meantime, the number of listings increased, partly due to a strong construction pipeline, with more than 1,000 units planned or already under construction in the metro area.

The largest absorption gain too place in South Central and Downtown Tucson. Rents were highest in the Oro Valley/Catalina submarket, at an average of $838 per unit, and the lowest average per unit of $512 was registered in the South Tucson/Airport area. Cushman & Wakefield analysts associated the slight rental gains of the past years with the lack of job growth within the region, and they expect minimal growth until significant hiring occurs in the market.

Retail Market Counterweights Struggling Industrial Sector; Office Stays Relatively Flat

Tucson graph - industrialThe past three years have shown an obvious decrease of rental rates in Tucson’s industrial market; however, vacancy has also been falling since 2011, due to the sudden falloff in new construction: After a robust 2012, the 10 largest industrial leases signed in the second quarter of 2014 barely totaled 10,000 square feet.

Both rental rates and vacancies enjoyed a slight gain at the end of last year, but without new buildings entering the market, sales are ever less frequent. The good news is that experts foresee new development likely during the rest of the year as a consequence of an impact fee moratorium from the city of Tucson.

Tucson graph - retailStatewide, retail sales were up 7.6 percent over the prior May, with the jump in overall year-over-year retail sales outpacing employment growth. Fundamentals continued to improve with the tightening supply in the city of Tucson, as well. The net absorption of 129,159 square feet in the second quarter made that the ninth consecutive quarter on a positive trajectory.

At 6.5 percent, vacancy also reached its lowest mark since the end of 2008. The solidification of the market resulted in asking rents climbing 2.3 percent to $14.52 per square foot from the previous quarter. Analysts are optimistic about further absorption and increasing rental rates, also expecting new development as vacancy rates stabilized and students return to the city after their summer break.

Tucson graph - officeThe overall vacancy in Tucson’s office market decreased only slightly, to 12.3 percent, with downtown producing most of the improvement: Vacancy there dropped 70 basis points in three months to 9.1 percent. Absorption figures were also encouraging, as the second quarter marked the third consecutive quarter with positive results. And lease rates remained steady.

Investment activity proved to be quite diverse, with investment sales ranging from $60 to nearly $287 per square foot. This produced a median sales price of $174 per square foot – compared to the $100 per-square-foot average for user sales despite a larger number of trades. Cushman & Wakefield projects a strong absorption and plenty of transit-oriented development as a result of the recent opening of the Modern Streetcar.