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FORECAST FOR 2004
Like the ship Titanic, icebergs the size of the Weiser Lock and Bombardier facilities will make for tough navigating and slow moving through Tucson's industrial real estate market in 2004. Owners of larger industrial facilities will feel some rough waters with trends continuing to be slow for these larger facilities.
Overall, the industrial market in 2003 was slower than that of 2002, and was pretty uneventful in terms of absorption.
Prior to the tech crash of 2000, Tucson has successfully (or unsuccessfully depending on your perspective) , competed favorably for an onslaught of call center operations and this helped our local employment at the lowest levels but more importantly, occupied a lot of vacant industrial buildings. Have you called your tech support for whatever product lately? You probably had a little trouble understanding the person on the other end of the phone. As Carly Fiorina, CEO, Hewlett Packard, recently said in a spirited debate, "There is no job that is America's god given right anymore". Tucson knows this well in 2003. In the last few weeks, I have met or heard about several companies that are pulling operations out of the US and Mexico and setting up operations in China.
The recap of 2003 deals is relatively short and sweet. We had negative absorption for the past 12 months. A summary of transactions shows that there were about 16 transactions that averaged between 20,000 and 40,000 sq ft. These transactions totaled about 285,000 sq ft. The largest transactions last year were the acquisition of the remaining former McCulloch facilities by Rainbird which was 101,400 sq ft, and the lease of approximately 90,000 sq ft in Century Park.
According to the Drachman study results released last week, there was 3,180,000 sq ft of vacant leasable space at the end of the 3rd quarter in 2003. A review of just some of these available spaces suggests that we may have a six to eight year supply of big box type product in just these larger facilities alone.
Not included in this tally is the Bombardier space that could be as much as 400,000-600,000 sq ft depending on their manufacturing status.
Leasing activity for highly improved R and D space also remains slow for 2003 and into 2004. This could change if national economic activity continues to increase in late 2004 and we see a continuing recovery in tech related capital spending. Hopefully, we will see some of this spending in Tucson.
GOOD NEWS
Some good news on the horizon is that activity for incubator and smaller free standing facilities will increase in 2004. While interest rates remain low, the owner/builder market will continue to see growth during the year. Leasing activity is picking up as we approach spring.
While 2003 saw rates soften for these smaller lease deals, rates should stabilize and begin an upward trend.
LAND SALES
We will see a small amount of activity and relatively little change from 2003 for sales of industrial lots in 2004. The market will be dominated by some new transactions in such parks as Butterfield and other parks in the Palo Verde corridor.
One exception to the status quo will be sales of finished lots in the new development at Orange Grove and River Rd. After several years of project delays, we will see some new highs in prices paid for quasi-industrial land in this northwest project.
SUMMARY
There will be numerous challenges and/or "icebergs" to navigate in the industrial market sector in 2004. We will not be setting any new records for absorption. The global economy issues may continue to plague any significant industrial growth in the Tucson market.
My prediction for the overall industrial vacancy rate at the end of the third quarter 2004 is 19.7%. I hope I am wrong and the number is lower!!!!
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