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MID YEAR COMMERCIAL REAL ESTATE MARKET REVIEW

MID YEAR COMMERCIAL REAL ESTATE MARKET REVIEW

BY Dave Gallaher, CCIM, Designated Broker and Owner of Tucson Industrial Realty LLC

Here is a quick snapshot of 2015’s commercial real estate market.  At the July meeting of the Southern Arizona CCIM Chapter, we discussed the level of activity and some of the largest pending transactions.

OFFICE:  Vacancy in the office market has increased to 12.7% which is a small increase of less than 1%.  The office market has been lethargic for sometime as many companies are either downsizing or rethinking how they conduct their office operations.  The average asking rental rate is quoted on an annual basis and was $18.25/SF.  Local owners are scrambling to make deals on older space.  The largest transaction for the year is a build to suit for Morgan Stanley that is approximately 20,000 SF.  The Department of Economic Security leased 11,000 SF in the Madera Business Park in South Tucson.

The real force in the office market remains “medical related” types of product.

There were 47 transactions during the 2nd quarter and the average “gross” rental rate was $15.37/SF/Annual.

RETAIL:  Vacancy remained unchanged at the rate of 6.7% and absorption was flat for the quarter.  Rates have remained flat and the average asking rate was $12.30/SF annual.  For the year, 80 properties have changed hands.  It seems like Mattress Firm has taken over just about every high image corner in Tucson and most of the new construction activity in the retail sector has been related to these stores.

INDUSTRIAL:  According to the latest Co-Star reports vacancy decreased to 10% for the quarter and is down a full 1.6% points from this time one year ago.  High Tech space recorded the highest absorption for the quarter improving from 11.2% vacancy to 9.8% vacancy.  Six of the top 10 leases for the quarter were lease renewals.  User sales were sluggish.  Several developments including the 800,000 SF HomeGoods project provided for the first time since 2008 that there was over 1,000,000 SF of new construction.  Lease rates experienced a small increase (3.8%) over this time last year.  Generally speaking, older product on the market is taking some time to be absorbed by local firms.  There were 26 sales for the first half of 2015.  Rents averaged .50/SF monthly both modified gross and NNN.  One of the other largest transactions was the sale of Old Pueblo Traders facilities to the University of Arizona.

SUMMARY:  The outlook for the remainder of 2015 is slow progress and slow growth.  We need jobs.  New jobs.  Manufacturing jobs are the most important force in accelerating the local economy.  In addition, we need to remain vigilant in our community support for Davis Monthan AFB.

For more information or help in leasing or selling commercial property, please call us at 294-1610/907-4983.