As with the national scene, quarter after quarter, we have cited the need for jobs to fuel a Tucson office market rebound. The State of Arizona reported significant job gains for the local market in February, with Tucson’s unemployment improving to 6.7% from 7.3% in January. In the past year, 3,500 more jobs were added, largely in the education, leisure/hospitality and construction sectors.
BACK-TO-BACK QUARTERS OF STRONG ACTIVITY
Following on a strong finish to 2012, lease activity in the first quarter continued at a more active pace. Rents began to firm, with asking rates virtually unchanged over the prior quarter. For better properties, concessions tightened, while secondary and tertiary properties still struggled for attention at lower rates and deeper concessions.
Slight positive absorption of 37,829 square feet (sf) occurred, ticking the overall vacancy rate down to 11.9% – 10.4% downtown, and 12.3% in the suburban Tucson market. This followed Q4 2012 positive absorption of 82,506 sf.
The ‘flight to quality’ afforded by years of rent compression has left a significant inventory of space challenged by dated improvements and deferred maintenance.
Medical space remained the demand leader as the trend toward Accountable Care Organizations (ACOs) materialized in legitimate market demand. Tucson Medical Center’s state-of-the-art West Pavilion opens in May, freeing some 50,000 (sf) of medical office space on the TMC campus for new medical-related occupancy. This large amount of well-located space will put pressure on properties challenged by access to hospital campuses.
INVESTMENT PRODUCT CONTINUES TO MOVE
High year-end investment sales momentum carried forward into 2013’s first quarter. The sale of 333 E. Wetmore (a class A, 142,000-sf multi-tenant property) in late March represented the largest stabilized investment sale in the Tucson market post-recession. Online auction has become a popular vehicle for disposition of foreclosed assets, most recently Wilmot Professional to a local investor at below $50 psf.
With tenant appetite for Foothills space and scarce supply, we still anticipate a user to trigger construction on a planned development. We also forecast outright sale of closed Tucson Unified School District (TUSD) school sites.
Downtown revitalization continued apace with two private projects under construction, Plaza Centro and 1 East Broadway, complemented by both planned and initiated projects including student housing, traditional apartments, retail, restaurant, and hotels. Development of the Tucson Modern Streetcar project will continue to keep all eyes on properties along its route.
Photo credit: chelle
Our team members have been active and visible in support of the market and industry. Read on for recent and upcoming events featuring Cushman & Wakefield | PICOR’s professionals.
Mike Hammond, President and CEO, was recently featured on Dean Greenberg’s Money Matters. Here’s an audio clip from his guest spot last month, where Mike talks about the Tucson commercial real estate market’s return to health.
Denisse Angulo, Regional Marketing Specialist for C&W | PICOR, joins a panel speaking at Tucson Commercial Real Estate Women (CREW) on April 18th on Doing a Deal in Mexico – the pitfalls and opportunities of cross border real estate. It’s an open luncheon program, with online registrations open through April 15th.Rob Tomlinson, Retail Specialist, moderates a panel for members of the American Planning Association on April 18th forecasting the downtown Tucson real estate scene in five years.
Bob Kaplan, Principal and Investment Specialist, speaks to the Metropolitan Pima Alliance on April 19th, as a panelist providing a Student Housing Update. Visit MPA’s website for more details and registration.
Rob Glaser and Mike Hammond are moderating a Mentorship class for the Urban Land Institute (ULI) Arizona, in which one of Arizona’s most significant owners/investors of business park property will be speaking to young professionals about that segment of the industry.
Barbi Reuter, Principal/Marketing & Operations, recently joined a panel with CREW Network to promote careers in commercial real estate. In this CareerZone video series, she and representatives from CBRE, Colliers International, Cushman & Wakefield and Windstar Partners talk about their entry into the commercial real estate brokerage business and strategies for success. She will also present two sessions on Twitter for commercial real estate professionals at ICSC RECon in Las Vegas next month.
Guest post from Tucson Regional Economic Opportunities (TREO), on the launch of a new economic development strategy focused on the strengths of southern Arizona diagnostics.
The realm of bioscience is really big. It’s kind of like saying, “I’m really good at sports.” The natural question one might ask is, “What sport do you excel in? Baseball? Football? Badminton?” The same question can be asked of bioscience. Does your community excel in biochemistry? Food science? Animal biotechnology? With a broad and expansive industry like bioscience, no one community can successfully deliver all aspects that industry encapsulates much like no one person can be the best in every sport.
In 2006, the TREO Blueprint identified bioscience as an industry cluster TREO and the community should focus on based on the strengths and assets of the infrastructure, research and talent that stems from the University of Arizona. For seven years that has served us well as companies like Roche, Sanofi and HTG Molecular have entered the market. However, there is a common thread amongst those companies: diagnostics. TREO recently published a report titled, “A Comprehensive Focus on Diagnostics Business Growth in Southern Arizona.” The report outlines why our region needs to specifically focus on diagnostics and what steps we need to take in order to attract companies and talent to become an epicenter for the diagnostics field.
TREO’s analysis of the economic opportunities for the region has identified diagnostics as a focus area for recruitment and retention of bioscience-related companies.
TREO commissioned Dr. Raymond Woosley, former Vice President for Health Sciences at the University of Arizona and Dean of the College of Medicine, and founding President of Critical Path Institute (C-Path), to obtain the guidance and consensus of the region’s stakeholders and identify specific steps that can advance the region’s economic strengths in biomedical sciences.
As part of the research and fact-finding conducted for this strategy, over 80 community thought leaders were consulted and numerous meetings of stakeholders were held. The broad expertise of this stakeholder group was critical for developing sound, specific strategies.
Download the complete report here
Michael Guymon, Vice President of Regional Development for Tucson Regional Economic Opportunities, is responsible for planning, developing and implementing the business development strategies of TREO to attract, retain and expand jobs and capital investment for the region. He provides direct client and project management services with site selection/expansion projects.
Geography, cost and a new attitude. Those three ingredients have put Tucson in the national spotlight for companies looking for markets with distribution hubs, a new report shows. Tucson is one of the least expensive cities in which to operate a distri…
We hopped onto Tucson Regional Economic Opportunities’ (TREO) website this week and found that three positive Tucson economic development and employment stories came rapid fire, within a week of each other.
Tucson Rated a Top 5 Metro in Mountain Region for 2012
The March 2013 issue of Site Selection magazine ranks Tucson in the Top 5 for Metros of all sizes in the eight-state Mountain Region. This ranking is based on the number of corporate relocation and expansion projects in the metro in all of 2012.
Click here to read the article in Site Selection Magazine.
Sorenson Communications to open new Tucson support center
Sorenson Communications, the leading manufacturer and provider of videophones customized for the deaf and hard-of-hearing, will employ 270 people at a 24,000 square foot technical support facility near Williams Center.
Sorenson Communications® is a provider of industry-leading communications products and services for the deaf and hard-of-hearing. The company’s offerings include Sorenson Video Relay Service® (SVRS®), the highest-quality video interpreting service; the new Sorenson ntouch® VP videophone, designed especially for use by deaf individuals; ntouch® PC, software that connects users to SVRS by using a PC and webcam; ntouch® Mobile, an application empowering SVRS communication via mobile devices; ntouch® for Mac®, an application that provides Mac users with on-the-go VRS; and Sorenson IP Relay® (SIPRelay®), a text-to-speech relay service. Sorenson will initially expend $1 million on tenant improvements and equipment upgrades to the facility.
Infinity Insurance to hire 300 workers at new Tucson facility
Infinity Insurance will house 300 employees in 25,000 square feet of space near Valencia Road and Country Club Road. Infinity works with hundreds of independent agents to deliver auto insurance and other products in combination with their underwriting firms. Infinity’s underwriting companies are focused on financial stability, critical research, and processing efficiency in car insurance across the 44 states they serve.
The company will initially invest $1 million in the operation and hire 150 workers immediately; employment is to grow to around 300 in the next few years.
Infinity Insurance is part of Infinity Property and Casualty Corporation (Nasdaq: IPCC), a national provider of personal automobile insurance. Its products are offered through a network of approximately 13,000 independent agencies and brokers. Infinity receives an A (Excellent) Financial Strength Rating from A.M. Best.
Click here for the latest news from Tucson Regional Economic Opportunities.
You might also be interested in last week’s Arizona Daily Star story detailing why Accelerate Diagnostics chose to locate in Tucson.
We like a concise weekly snapshot of economic activity that hits both the national and regional scenes, and thought we would share Elliott Pollack & Company’s latest with you. This week, Elliott Pollack & Co. weigh in on some positive national indicators and sequestration’s impact on Arizona.
For a free email subscription, click the link in the following headline:
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
The past week saw an overall increase in optimism as a result of improvements in the stock market and a positive jobs report. This occurred despite the passing of the “deadline” related to sequestration. Words like deadline and “final” and “budget” do not mean the same thing in Washington D.C. as they mean here. One needs to keep in mind that the improvement in the housing markets across the country this past year served as a bit of a foundation to this week’s newly found optimism. Consumer confidence still matters.
For the U.S. as a whole, the addition of 236,000 new non-farm jobs in February was unexpected but welcomed. This is in addition to a 7.7% unemployment rate for February (down from 7.9% in January and 8.3% from last year). Unfortunately, nonfarm labor productivity decreased at 1.9% annual rate in the fourth quarter of 2012. The forecast for real GDP for this year remains at 1.9%.
Consumer credit increased at a seasonally adjusted rate of 7% while revolving credit remained unchanged. Wholesale trade is up 3% over the previous year’s levels. The non-manufacturing sector saw growth for the 38th consecutive month in February 2013, with the ISM’s Non-Manufacturing Index at 56.9. On the other hand, U.S. manufacturers’ new orders decreased two of the last three months with a 2.0% decline in January 2013. U.S. NAR is reporting strong growth in median home prices for several metropolitan areas. Overall, the national price had the highest year-over-year growth in seven years with a 10% increase.
For Arizona the story remains the same. The economic data related to job creation and home prices will determine confidence in the local economy. Arizona will remain a top 5 state for employment growth this year as will the Greater Phoenix region. The impacts on the state’s economy related to sequestration will be noticeable but not debilitating. A revised estimate of 30,000 lost jobs occurring over a two year period represents only a fraction of the projected employment growth. However, specific sub-markets across the state that are disproportionately dependent on military spending will feel the impact. Does sequestration matter to Arizona? Yes. Will the state be strong enough to withstand the effects? Yes. Could the federal budget cuts occur in a more strategic manner? Again, yes.
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.
For more information, contact –
Elliott D. Pollack & company
7505 East Sixth Avenue, Suite 100
Scottsdale, Arizona 85251
Photo credit: Eller College