TUCSON-While its big city neighbor to the west, Phoenix, is experiencing significant industrial demand, Tucson’s industrial market continues to struggle, according to CBRE’s second quarter market report.
“Part of the reason why Phoenix is doing so much better than Tucson is the availability of newer space,” says Tim Healy, a broker with CBRE’s local office. “During the last development cycle, we didn’t see a lot of development, so when companies are looking for larger, newer industrial space, we don’t have it. Our building stock is dated.”
During the second quarter, the industrial market vacancy rate increased for the second time in 2011, rising to 11.3%, according to CBRE. However, the vacancy rate is still lower than one year ago when the rate was 11.8%.
The market lost 100,909 square feet of occupied industrial space in the second quarter, which combined with a loss in the first quarter, leaves the market with 148,967 square feet of negative absorption at mid-year, according to CBRE.
“Although the second quarter data shows negative absorption, there is certainly more activity now than there has been since 2008,” Healy tells GlobeSt.com. “I just don’t think it’s showing up in the numbers yet. The feeling is that this activity will begin to bear fruit, and we’ll see some positive absorption later in the year.”
Healy says the activity is driven by an overall improvement in the national economy, with national companies accounting for more demand than locally-owned businesses. Since homebuilding is such a large part of the Tucson economy and accounts for a large percentage of industrial demand, the ongoing weakness in the residential market continues to put a damper on the industrial sector, he adds.
Average asking industrial lease rates have remained flat in the first half of 2011, according to CBRE. Rates dropped one cent in the first quarter and two cents in the second quarter, to $6.62 per square foot at mid-year. This trend is expected to continue throughout the year.
“There are a lot of buttons that need to be pushed for Tucson’s industrial market to be healthy again,” Healy contends. “Homebuilding is the biggest one. And we need in-migration to return, which also ties into housing demand and homebuilding.”
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