TUCSON-CBRE Q3 2013 reports for Tucson can be best described by two words: Mixed bag. Though the industrial and retail sectors saw year-over-year improvement in vacancy rates and absorption, the office arena saw an increase in office vacancy (from 19% to 20% year over year) and a year-to-date negative absorption of 201,000 square feet. Total inventory for the market is 8.9 million square feet.
Office
According to CBRE's Marketview, office tenants have been reducing their space sizes upon renewal. Furthermore, shadow leases are expiring, which is also taking its toll on vacancy. The good news is that offices aren't closing as fast as they were before. However, "the resizing of existing tenants is taking a toll on the market," the report notes. This has led to a flattening of lease rates, which are between $18 and $20 per square foot.
The outlook is unlikely to improve on the office side anytime soon, though the report says continued job growth will certainly help. Also on the positive side, landlords are becoming more reluctant to offer incentives to tenants, showing market improvement. Overall, however, "Tucson is still a few quarters away from seeing a significant drop in vacancy and a rise in quality jobs offered in the Tucson market."
Industrial
The Q3 news is somewhat brighter on the industrial side. Vacancy is at 11.5% out of an inventory of 34.6 million; almost a full percent lower than the 12.4% reported for Q3 2012. Absorption was 328,383 square feet. Even with all of this, rental rates dropped – the asking rate of $0.47 is $0.06 lower than what was reported in Q2 2013. The Q3 2012 ask was $0.55.
The CBRE Marketview report points out that, though job growth has been slow, the aviation, mining and call centers are taking space. Furthermore, as home-building continues to grow, more wholesale and distribution space should continue to be absorbed, and asking rents will increase.
Retail
More good news came out of the retail sector this past quarter. Specifically, vacancy stood at 8.4%, with year-to-date absorption at 358,545 square feet. The total inventory available os 21.8 million square feet.
Interestingly enough, Q3 experienced active new big-box leasing – there are only six vacant big-box spaces measuring 30,000 square feet and above. Smaller shop retailers and restaurants are also taking space. New retailers want to enter the Tucson market, and those already there are interested in expanding. As such, the report points out that "as more space is absorbed, redevelopment will become necessary due to obsolete and/or outdated properties."
Furthermore, new home construction is starting to pave the way for new retail as well – a trend that will continue for the near future.
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