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2014 Year End Recap and 2015 Industrial Market Forecast

TUCSON INDUSTRIAL REALTY LLC

DAVE GALLAHER, CCIM, DESIGNATED BROKER

INDUSTRIAL REAL ESTATE FORECAST

EOY 2014 AND 2015 PREDICTION

 We recently had the privilege to present to the annual BOMA and IREM Real Estate Forecast January 27, 2014 at Skyline Country Club.  These are the highlights of the past year (2014) and our prediction for 2015.

Tucson’s economy continues to improve albeit very slowly in 2014.  There was a lack of new manufacturing jobs added for the year and overall activity in industrial real estate improved slightly.  According to Co Star who now tracks the industrial real estate and rental market for the past few years, we saw the overall vacancy rate for industrial buildings decline to 10.6%.  The current inventory of industrial space product in Tucson totals just over 40,000,000 square feet.  There was net absorption during all four quarters of 2014.  The most noticeable reduction in vacancy rate was for “flex” type product which tends to be highly improved for as opposed to warehouse space.  This product type achieved a two point reduction in vacancy for 2014. The trend for the vacancy rate the past four years is an ever slow decline from above 12% in 2011.

Activity increased overall during 2014 with a busy 4th quarter in both leases and sales.  Some of the leases and more substantial sales include:

1)  Holualoa Capital Management purchased an 80,600 SF building for $37.66/SF or $3,035,000.

2)  5505 Nogales LLC purchased 81,094 SF at 5505 S Old Nogales Highway (Flouresco) for $34.53/SF or $2,800,000.

3)  Presson Corporation out of Phoenix purchased a 33,082 SF leased investment building for $62.00/SF or $2,050,000.

4)  Aztec Flooring bought a 12,165 SF warehouse for $440,000 or $34.75/SF

5)  One of the largest sales of the year was for a 66,250 SF call center at 1150 W Drexel at $149.28/SF.

Lease deals that were being worked on in late 2014 that took effect in 2015 include:

1)  Solon leased 11,103 SF at 3840 S Palo Verde.

2)  Revenue Cycle Center dba Shared Services Center of Tucson leased 60,405 SF at 6223 S Palo Verde formerly occupied by Raytheon.

3)  Premier Van Lines leased 6600 SF at 3675 E 43rd.

4)  Fed Ex will relocate later this year to 210,000 SF new construction south of Valencia on Palo Verde.

RENTAL RATES:

Co Star reported the average rental rate of .54/SF monthly (could be NNN or Gross) for the Tucson market.  If activity does accelerate in 2015 we can expect some product type rental rates to increase by five to ten percent.  Older product will see some slight increase but will not change much by the end of the year.  Interest in new construction product will remain sluggish and we will see a few build to suit opportunities during the year for those companies that cannot find the perfect facility.

CONCLUSION:

In conclusion, 2015 will see some positive, yet still sluggish, improvement in the local economy.  There will be more leases completed this year vs 2014.  Several key activities will help this momentum.  One of the largest economic development possibilities on the table for Tucson is the possible location for a Home Goods Stores distribution center that could be as large as 500,000 SF.  Let’s keep our fingers crossed for this company to pick Tucson over other southwest cities.

Downtown activity in both office and restaurant and hotel development will continue.

For more information on the industrial real estate market in Tucson please refer to our website at www.tucsonindustrialrealty.com .

Dave Gallaher, CCIM

Designated Broker

Tucson Industrial Realty LLC