TUCSON—This is the eleventh consecutive quarter in which the Tucson industrial market has reported positive absorption, with 266,771 square feet in the third quarter 2014. The Tucson industrial market observed a healthy drop in vacancy in the third quarter, reporting 10.4%, down from the mid-year vacancy of 11.1%. The supply of premium space is beginning to tighten in the Tucson market, which is driving up rates and leaving fewer options for new tenants entering the market. GlobeSt.com caught up with Bill DiVito, first vice president, CBRE, to get his take on the numbers.
GlobeSt.com: To what do you attribute the health of the industrial market?
DiVito: No new product is being built so rental rates are rising and vacancies are falling; this, in turn, is causing property values to rise.
GlobeSt.com: What are the drivers in Tucson?
DiVito: Construction: We're seeing an uptick in public projects like the Modern Street Car rail system connecting downtown with the university and multiple city-wide projects like the widening and improvements of Grant Road and Broadway Boulevard. The housing market is also slowly starting to rebound. The University of Arizona is also a major driver, particularly where high technology, bio-tech, and pharmaceutical industries are concerned, as well as R &D research. We're also seeing the expansion of distribution networks to service Tucson and the surrounding communities south and southeast of Tucson. FedEx's current BTS project is a good example. Also, the rejuvenation of offshore manufacturing in Mexico is a boon to Southern Arizona as well.
GlobeSt.com: Of the remaining vacant space within the industrial market, how much would you say is nearing the point of functional obsolescence? What do you think should be done with that space?
DiVito: In excess of 10% will no longer meet the modern needs of industrial users. That product is going to have to be redeveloped for other uses.
GlobeSt.com: What are the biggest challenges facing the market?
DiVito: Job Growth in higher paying sectors. Job growth has been positive, but also slower than expected and uneven. We need to see consistency in job growth and we need to see more higher-wage jobs return to the market.
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