Commercial real estate markets are broadening nationwide but booming in Tucson. We’re always late bloomers. Our residential sales have been breaking records for the past year. Many agents have made more sales in the past 12 months than at any previous time in their careers.
Commercial real estate always follows residential and today is no exception. The indicators are unmistakable:
This won’t be Tucson for another 100 years!
Rents are rising quickly. Most sectors are experiencing rapid rent increases. Multi-family is the quickest to react because of the short-term rentals and shorter leases. Tucson rents are rising at a fast rate. Vacancies have all but disappeared and absorption rates are at a decade high.
The Tucson small office market vacancies are dropping quickly also. Small office space leases are slightly longer than Multi-Family leases but still shorter than say, large firms with multi-year leases for large spaces in class A buildings. The smaller firms lease for 2-5 years typically and many stay month to month after their leases run out.
Risk factors which affect investor activity are the trade offs of smaller properties with higher turnover and lower barrier to entry. With large properties with mature business clientele and typically longer leases. Annual lease rates accelerate faster on smaller properties while larger business clients’ leases tend to increase at a slower rate.
CAP rates are climbing on the smaller properties due to increasing rents. Larger properties are less volatile and are more stable but don’t offer the opportunity to increase rents as quickly.
Investors are hoping for more industries to support job growth and supply new workers to fill the growing job market.
Tucson’s commercial real estate market is certain to grow for the next two to three years and vacancies will continue to drop. Lower space inventory is expected to continue across the board over the next two years. Office and industrial space are both experience robust absorption rates and with less supply rents are expected to increase in direct proportion to the inventory available.
The big question for most commercial investors is which industries will emerge to grow the Tucson job market? Tucson has fewer industries than Phoenix or California and as a result, slower job creation which impacts the commercial real estate market.
Tucson needs to become more aggressive and ‘business friendly’ to attract some new businesses to the market. New industries will ensure job growth and will attract more workers to our market.
And the best reason of all…Tucson is a great place to live and raise a family. We’re friendly, polite, and we welcome you to enjoy our wonderful weather.
Remember…”It’s a dry heat!” (You’ll get used to it)