TUCSON—Tucson's third quarter office numbers continue to be a mixed bag. GlobeSt.com speaks with Buzz Isaacson, CBRE first vice president, to get his take on the numbers.
The third quarter produced the office market's first negative net absorption in three quarters, with negative 79,284 square feet. This reduces the year-to-date total positive absorption to 20,944 square feet. The Q3 2014 average asking rate on a full service basis for tracked office product in the Tucson market was recorded at $19.47 per square foot per year, up $0.19 from Q2 2014, which was $19.28. As a comparison, the Q3 2013 rate was recorded at $19.35, which is in between the Q2 2014 and Q3 2014 rates. With limited new tenants in the market and ample available space, the Tucson office market has seen many existing tenants take the opportunity to upgrade their offices. Conversely, with insufficient new tenant activities, landlords have been motivated to move space, and have offered lower rates and/or concessions in high quality vacant space.
GlobeSt.com: What do you think is the reason for the negative absorption?
Isaacson: The negative absorption is primarily the result of rightsizing and consolidation. The market has not been able generate the momentum to positively offset groups that are reducing their space requirements. On the positive side, the size of the Tucson market provides the opportunity for a few larger deals to quickly shift the market outlook and absorption numbers.
GlobeSt.com: What do you think is the reason for the lack of new tenants?
Isaacson: Many of the emerging markets that have created momentum in other cities have not impacted our market with new jobs. Some local companies have remained tentative as they have not seen enough sustained growth to move into an expansion mode.
GlobeSt.com: How will the landlord motivation to move space take shape and affect the market?
Isaacson: Landlord motivation will affect the market in a variety of ways. Landlords with aging product will be required to remain very aggressive with rates and incentives. Landlords with existing tenants will continue to see the value of protecting their existing rent roll, and will work to avoid the costs associated with turnover. The motivation will also encourage some landlords to invest in their buildings to update the asset or establish a new use.
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