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Tucson Economy Expands in 2018 and Vacancy Rates Decline

Tucson Economy Expands in 2018 and Vacancy Rates Decline

The Industrial building market is becoming tighter with fewer options available to new companies entering the Tucson/Pima County market. Overall absorption according to the latest PICOR statistics was positive 57,243 SF. The overall vacancy rate for industrial buildings was 6.3% in the overall market of 42.9 million square feet. There are a number of properties above 100,000 SF but they do not divide for smaller quarters. As absorption continues into the 2nd quarter of 2018 there is still a slim chance for new construction to finally begin unless it is a build to suit transaction. With land pricing and construction costs, new construction cannot compete with existing buildings for rents. The average industrial lease rate ranges between .50-.60/SF and new construction will be in the .90/SF and higher range. Existing buildings are currently in the $60-70/SF price range.

There remains a fair amount of lower priced product that has to be absorbed for there to be any realpressure on new construction. Land sales were slow during the first quarter. According to the recently released newsletter from PICOR there were only four smaller parcels sold in the first quarter of 2018. Eleven buildings were sold and eight of those were owner occupied.

Generally speaking, average rental rates for smaller users will climb about 5% or more during 2018. Well located industrial space will see slightly smaller increases. As vacancy falls we should see continuation of this trend into 2019.

During the first quarter of 2018 there were only 4 notable sales transactions with the largest being the sale of 40,295 SF ($56/SF) at 1955 W Grant Road. The next largest transaction included 124,778 multi tenant facility at 1851 S Pantano.