Specializing in Leasing, Sale, and Development
of Industrial Real Estate
Tucson Industrial Realty, LLC is a full-service industrial real estate firm that provides both leasing and sales expertise in the Tucson and southern Arizona industrial and commercial real estate market. TIR covers the spectrum of industrial and commercial real estate activities, including property management, appraisal, leasing, sales, and consulting.
Tucson Industrial Realty, LLC is a multi-disciplined firm offering professional commercial real estate related services. If you are in the market to lease or buy a facility, we can provide the answers to all of your industrial real estate needs.
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News on the Street |
August 15, 2008 WHAT’S HAPPENING IN THE TUCSON ECONOMY AND REAL ESATE? At a recent economic update with local business leaders last month, Marshall Vest and Gerald Swanson, University of Arizona economists, declared that the Tucson economy and Arizona in general are in a bad recession that is worse than the recessions of 2001 and the early 90’s. Housing has been the most affected section of real estate locally and statewide. According to Vest, government statistics show that home prices have only declined 2.9% this past year but that this number is under representative of the actual Tucson market because of the 4400 existing foreclosures. Tucson has also been losing jobs at a rate of 3% annually the last two years and retail sales are feeling the pinch. Both economists predict this recession to last until the end of 2009 and possibly beginning of 2010. We have seen job losses in all sectors except mining. RETAIL MARKET As consumers tighten their belt and wallet and cut back on discretionary purchases, retailers are feeling the brunt of slow economic times. Tucson has experienced unprecedented expansion within the retail sector the last five years but that is changing. Shopping centers sprang up in all direction as developers chased rooftops. Local developers are seeing retailers hold back from inking deals and leases that have been in the works for months if not years. While most sub markets have suffered there are a few bright spots such as out southeast in the Vail area. The southwest sub market has done well and continues to see some activity in the new Wal Mart center. INDUSTRIAL MARKET The downturn in the construction industry has impacted the industrial real estate sector as all trades and contractors are in a survival mode. There have been numerous bankruptcy filings in the past two months of recognizable builders. Many of the filings have impacted sub contractors who lease space in incubator type projects. Additional new product coming on line in mid summer has pushed vacancy rates from single digit rates to double digits. We estimate the current industrial vacancy for non-owner occupied industrial space to be approximately 13.5%. This is a substantial change from one year ago. Incubator space has taken the biggest hit so far although several call centers have recently closed their doors as well. Leasing rates are softening. Sales of industrial buildings have slowed down this year compared to the past. There have been 30 sales of industrial properties during the first six months of 2008. The total square footage sold represents 383,000 SF and the overall average $/SF was $90.63. As the economy has cooled on both a local and national level, many businesses have delayed their decision to purchase. At the same time, financing seems to be available but that too has slowed from some lenders. Prices have softened moderately the past few months. We predict a 5-15% correction in values for the year. New construction pricing of $135-150/SF remains a hard sell to buyers. Most properties are selling within the $85-$110/SF range. Well positioned product with easy access to the northwest has continued to be the stronger market of the sub markets but we see some softening in that market too. During the past 45 days we have seen many properties being remarketed with lower pricing. We continue to advise our clients to price their properties competitively. We also encourage our owners to take a hard look on making a “deal” if the Tenant has a reasonable track record at another location. In conclusion, we think the next 24 months will present challenges to owners. We are coming off one of the most profitable times in our history for owning Tucson real estate but things are changing. We remain focused on the challenges ahead in achieving positive results for our clients. If you have any questions we look forward to assisting you. |
Tucson Real Estate Market News
Tucson Industrial Realty, LLC Forecast for 3rd Quarter 2008
What Will 3rd Quarter 2008 Tell us? We foresee a slight increase in the percentage of vacant leasable space for the 3rdquarter of 2008 at 13.8%. Barring a national recession that would ultimately affect Arizona, we see a slight slow-down in overall leasing activity in 2008. We think the most challenging product in the market will be the new construction which is considerably overall higher in both lease rates and asking sale prices. Lease rates for new construction product are averaging above $1/SF monthly and increasing to $1.50/SF and some of these do not include NNN expenses.
While prices for industrial buildings have continued to climb in value for 2007, we see this trend continuing for 2008. There may be some resistance above the $115/SF level and some new product coming to market in 2008 may be slow to lease or sell. Obviously, well thought out construction will play a critical part when competing with like and lower cost product. Tucson’s residential construction slow down overthe past 12 months will influence vacancies for smaller multi-tenant centers as the trade industries become slower and slower. We look to a continuation of this trend for 2008. In conclusion we see few challenges ahead in the industrial sales and leasing market in 2008. Tucson remains well positioned for continuing growth in retail and new in-migration will pump the market for new employment opportunities.
If you have any questions about our analysis for 2008 we would welcome the opportunity to hear from you.
INDUSTRIAL MARKET REPORT
3rd Quarter 2007
According to COSTAR’s 3rd quarter report for Tucson’s industrial real estate market, Tucson had net absorption of just under42,000 SF. Total vacant sublease space decreased ending the quarter at roughly 182,000 SF. Rental rates ended the 3rd quarter at $8.12/SF annual rent which was an increase from the previous quarter.
There was 812,815 SF under construction at the end of the quarter. This was 446,143 of negative absorption within the second quarter of 2007 and positive absorption of 133,000 SF in the first quarter of 2007.
Vacancy: The industrial vacancy rate in the Tucson market area increased to 5.7% at the end of the 3rdquarter of 2007. The vacancy rate at the end of 2006 was 4.4%
The largest leases signed in the quarter were Fed Ex Ground Corporation’s lease of 86,484 SF at 777 E. MacArthur Circle in the south sub-market, 78,000 SF by R.E. Barnett at 3000 E. Elvira in the south central market and the 70,000 SF lease signed by PODS at 6161 S. Palo Verde also within the south market of Tucson.
Inventory: Total industrial inventory in the Tucson market amounted to 32,935,433 SF in 2,079 buildings as of the end of the 3rd quarter 2007.
Sales: Total year to date industrial building sales activity in 2007 is down compared to the previous year. The market saw 11 industrial sales transactions with a total volume of $33,940,000. The average sale price this year is $66.46/SF.
Cap rates have been lower in 2007 averaging 7.06% compared to the first six months of last year which averaged 7.97%. The largest transaction was for 100,800 SF and sold for $6,435,000 or 63.84/SF.
Home Sales Hit Low
SMALL FIRMS NOT RENTING
AZ Job Growth To Slow?
Job growth in Arizona is expected to slow this year and even slower in 2008 according to new figures released by the Department of Economic Security who predicted the state will add 180,000 non-farm jobs during this year and next. This equates to 3.7% growth versus 5.4% in 2006, but is nearly three times the national rate.
According to the Eller College of Management’s Economic and Business Research Center, job growth in Tucson area will plunge sharply as a result of the downturn in construction and real estate markets. Lower consumer spending will also contribute to slower job growth in the local economy. The DES is also predicting non-existent job growth in the manufacturing sector with softeardemand for computer electronic products.
Green building is the practice of increasing the efficiency and reducing the environmental impacts of land development. This can be achieved not only through installation of energy efficient appliances or recycling white paper, but through more indirect energy saving techniques and innovative construction practices. Some of these are site selection, (which includes calculating transportation and Heat Island impacts on the environment), and water conservation, for example using non-potable wastewater for landscape irrigation. More ways to build green are to carefully choose construction materials by using rapidly renewable materials, parts and materials of the previously existing building, and by choosing materials that originate locally. Building green does not stop at the ribbon cutting. Operation and maintenance play a huge role in sustaining the energy efficiency and increased value green buildings provide.
Green building is a win-win situation. For example, if the HVAC unit for an existing building gets a green renovation; the utility bill will be reduced, lowering NOI. At the same time the now up-to-date energy efficientHVAC system has increased the property value. Building green will ultimately leave the owner with a more desirable, thus higher priced piece of real estate. An investor/owner will lower the monthly expenses during ownership and realize a higher return when it is time to sell.
Through better site selection, design, construction, operation and maintenance, one can reduce impacts on human health and the environment, not to mention increase the property value.
Returns on Energy Conservation |
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| Investment per SF | Rate of Energy Savings | Annual Savings per SF | Savings per 100,000 SF Office Building | Assest Value Increase at a 10% Capitalization Rate | Simple PayBack | |
| Janitorial Services | $0.01 |
5% |
$0.14 |
$13,500 |
$135,000 |
Immediate |
| Operations & Maintenance | $0.05 |
9% |
$0.20 |
$19,800 |
$198,000 |
4 Months |
| Lighting | $1.04 |
16% |
$0.36 |
$36,000 |
$360,000 |
3 Years |
| Heating, Ventilation & Cooling | $1.21 |
9% |
$0.21 |
$20,700 |
$207,000 |
6 Years |
| All Combined | $2.30 |
40% |
$0.90 |
$90,000 |
$900,000 |
2.5 Years |
Sustainable and Responsible Property Investment in 2007, Dr. Gary Pivo, MRP, PhD, University of Arizona, UNEP FI Property Working Group Institute For Rsponsible Investment
*Green Building Checklist – Commercial Construction: http://www.ci.berkeley.ca.us/onlineservice/planning/II.F.4%20Green%20-%20Commercial%20Checklist.pdf
TUCSON HITS ONE MILLION
According to local Tucson Planning administrator David Taylor, reached a population of one million residents sometime around November 12, 2006. According to Taylor, someone moves to Pima County every nine minutes while someone moves out every 15 minutes. One person is born every 41 minutes and someone dies every 67 minutes. Tucson reached half a million just 28 years ago. By 2040, planners say 10 million people will live in a "megapolitan" area sprawling from Prescott to Sierra Vista. More people move to Tucson from Maricopa County than anywhere else. Countywide, 47,000 homes have been built since 2000. Tucson has hit the one million mark about three years earlier than predicted.
Forecasters See Real Estate Riding Population Wave
March 31, 2006, Inside Tucson Business
Although Tucson rests in the middle of the Sonoran desert, the city’s
rising tide is expected to continue raising all boats, at least when it
comes to the commercial real estate market in Southern Arizona.
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How to Hold Title to Real Estate?
How you hold title to property is very important and can have far reaching implications in the future to both your family, business and spouse. While we can't predict what is best for you, we encourage that if you are buying property this year, you carefully evaluate what may be the best for you. Click here to review several popular ways to hold title to real estate.
What is the Empowerment Zone?
The Tucson Empowerment Zone provides benefits to businesses and people who are looking for jobs. The benefits are intended to stimulate job growth and promote economic development. The zone is designated by the US Department of Housing and Urban Development and it provides federal tax credits to businesses as an incentive to locate in and/or hire people who reside there. These tax credits are a direct bottom line savings to the company.
The zone is approximately 17 square miles in area is roughly bounded by Pastime Road on the north, Irvington Road on the south, Fairview Road to Mission Road on the west and Los Altos to Campbell on the east. A business can take up to $3000 per year through 2009 for each employee they hire that works in the zone. There are several other available credits. For more information please check out the Tucson Economic Regional Opportunities website at www.treoaz.org or call Paul Swift at 520-243-1947.
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GALLAHER WINS CCIM REAL ESTATE FORECAST
Dave Gallaher, Designated Broker and Owner of Tucson Industrial Realty, LLC, won the highly coveted and very expensive trophy award for the third consecutive year for predicting actual vacancy rates for industrial properties for the third quarter of 2005.
This annual forecast event which is highly attended by professional real estate industry members will be held March 30, 2006 at 8:30 AM at the La Paloma Resort on Sunrise Drive. This is the fourth year that Dave has presented at the CCIM Event and given his summary of the previous year in industrial real estate and predicted the vacancy rate for the upcoming third quarter. Please read below for a copy of Dave's past and current reports. Current Forecast Past Speeches |
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