WESTERN SNAPSHOT, NOVEMBER 2008

Tucson, Arizona, Industrial Market

Hall

Bucking the trend of continued absorption and decreasing vacancies, Tucson’s industrial market is seeing signs of increased vacancies and general softening. The occupancy level has declined to 92.3 percent, a still solid rate but lower with market trend signaling further decreases. These statistics reflect activity at Tucson’s industrial parks and larger properties, not much of the owner/user inventory.

Despite a relatively small amount of available space, 390,996 square feet was absorbed during 2007. That amount was lost in first half 2008 with a 392,000 square foot vacancy decline. The biggest contributors were ADE Phase Shift (60,000 square feet adjacent to the airport), Honeywell in the southwest submarket (66,000), UF Outlet (73,000) and Tucson Coop Warehouse (43,000).

At the end of 2007, there were limited blocks of larger space. A half dozen new spaces totaling 50,000 square feet have come on the market in the last six months, the most notable of which is the 220,000-square-foot American Home Furnishings warehouse at Prince and Interstate 10, a high-profile property and location. Also, there’s the soon-to-be vacated 250,000-square-foot Texas Instruments Plant adjacent to the airport.

Approximately 1.5 million square feet are under construction as 2008 advances, the largest of which is the new Target Internet Fulfillment Center in southeast Tucson, located in an emerging area that includes such major industrial users as Raytheon and IBM at the University of Arizona Science & Tech Park. The university research park, Target, La Costeña and Global Solar combined for close to 4 million square feet with 99 percent of the space occupied.

Business park condominiums, a new product type in Tucson, can be found at the Southgate Business Park, which offers the flexibility of individual 2,400-square-foot units up to a full 32,000-square-foot building. A total of approximately 108,000 square feet across five buildings will be built.

In the first half of 2008, Tucson land sales prices stabilized and saw little, if any, increases. Lease rates remained steady after posting strong gains in 2006 and 2007. Strong federal and state spending in southern Arizona, coupled with growth in certain sectors such as mining and solar, should carry the local economy for the next 6 months. Lease rates and sales prices, both for land and facilities, will flatten, but should not decline. Landlords should be very aggressive in keeping existing tenants and attracting new tenants for existing vacancies.

In conclusion, the Tucson industrial market maintained strength and velocity entering 2008. This trend has slowed; the market will take a step back as vacancies rise throughout the rest of the year.

Russell W. Hall is a principal at Tucson-based PICOR Commercial Real Estate Services, a Cushman & Wakefield Alliance member.

Note: The PICOR Study, from which the above stats are pulled, tracks 16.387 million square feet of a total market size in the 40 million-square-foot range.

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