Tucson-area industrial real estate market cookingby David Pittman on Jul. 27, 2006, under Local
While southern Arizona land and office markets have slowed considerably during the first half of 2006, the industrial market here continues to burn red hot.
Tucson’s retail market is on a strong pace, too, although an expert predicts it will slow during the second half of 2006.
The mixed review of commercial real estate activity was provided by specialists at Tucson Realty & Trust Co. at a Tuesday news conference at Tucson Country Club.
“The industrial market in the first half of 2006 has been extremely strong,” said Patrick Welchert, a Tucson Realty & Trust industrial specialist. “We currently are enjoying the lowest vacancy rates in the past 10 years.”
Welchert said unoccupied industrial space has declined about 2 percent since the first quarter of 2006. Less than 10 percent of industrial space in Tucson is vacant.
The declining industrial vacancy rate is due primarily to incoming companies buying large spaces abandoned by other firms. For instance:
● The former Slim-Fast Foods Co. building, a 440,000 square feet at 8755 S. Rita Road, was sold to Arizona Canning.
● The former Weiser Lock building at South Midvale Park and West Valencia roads, was sold to Pella Windows.
● The former Imation building, a 100,000-square-foot property at 8500 S. Rita Road, was sold to Glass Fiber Inc.
Construction of industrial space “will not show up until the end of 2006 or first quarter of 2007,” Welchert said. He said the cost of that space will begin at about $100 a square foot for a mere shell product, about twice as much as two years ago.
“It may take a while for the sticker shock to set in with new buyers, thus driving up demand for existing products,” Welchert said.
Tim Bentley, a retail specialist with Tucson Realty & Trust, said vacancy rates for local street-side stores and shopping centers have fallen by more than a half percent, to 8.8 percent and 8.2 percent, respectively.
However, Bentley predicted a bearish slide in the second half of this year “as the retail market catches up with the slowdown in the housing market” and rising interest rates.
“Our concern is that local retailers are being priced out of the market as only large national and regional retailers, for the most part, can afford to pay rapidly increasing rental rates due to higher development costs for land and construction,” he said.
Richard Foerster, a land specialist, said home builders are “pulling back their reins and taking a breather” from land buying due to lower demand, dropped closings and a vast inventory of subdivisions on drawing boards.