In his quarterly briefing this past month, Dr. Victor Calanog, Reis’s Vice President of Research and Economics, highlighted the drop in Tucson’s Q4 2012 revenue per square foot for office space, a 0.8% decrease from Q4 2011. This compares to a national increase of 2.3% over the same period. During this time, Phoenix experienced a 1.1% increase.
Tucson’s Vacancy Rate & Limited New Construction Helping Recovery
Slow to recover, Tucson is still reeling from the economic downturn. This sluggishness is reflected across all sectors, and the office market is no exception. Part of the reason for the declining revenue in Tucson is the stubbornness of rent growth in the office real estate market. Quarterly effective rent growth was -0.4% in Q4 2012, ranking near the bottom of all major metros tracked by Reis. This bad news is offset by a vacancy rate of 15.5%, which is comfortably below the nationwide average of 17.1%. Limited new construction has helped to maintain a relatively low vacancy rate despite inconsistent demand.
Phoenix Job Market Continues to Improve
Comparatively, Phoenix fared much better than Tucson in Q4 2012 in terms of effective rent growth: At +0.4%, the metro placed close to the midpoint of the major markets covered by Reis. Still, the recovery in office space has been tepid nationwide and Phoenix has not been immune. Particularly worrying is Phoenix’s high vacancy rate, which has historically been quite volatile. After hitting a cyclical low of 11.5% in 2006, the current figure stands at 25.8%, among the highest in the country. But while faint, there is a light at the end of the tunnel as the local job market has shown signs of life. The metro’s unemployment rate has fallen from a cyclical high of 10.6% to 6.7% as of the end of 2012. As the job market continues to improve, Phoenix landlords will benefit from firms looking to expand their space to meet burgeoning staff levels.
Q4 2012 Briefing predicts slow and steady year for 2013 commercial real estate
Dr. Calanog concluded Reis’s Q4 2012 briefing by predicting a measured increase in national commercial real estate fundamentals throughout 2013, saying that he expected slow and steady growth for the year. We expect Tucson and Phoenix to follow a similar slow growth path for the foreseeable future.
Credit: CRE Data & Video provided by Reis, Inc.
Editor’s Note: Market statistics vary from those quoted in C & W | PICOR’s quarterly reports, due do differing data sources and data sets. For details on Reis, Inc.’s survey criteria, please visit the Reis, Inc. FAQ page.
From Vancouver, B.C. with the lowest tracked vacancy rate to Birmingham, Alambama with the highest, Cushman & Wakefield has compiled statistics on the North American industrial markets. Where does yours stack up against the field of primarily U.S. …
Property taxes are one of the main expenses of real estate ownership in Arizona. In today’s business climate, taxes are under the microscope more than ever as property owners and managers seek ways to reduce expenses. We are fortunate that Arizona has a tax valuation appeal system. The system allows property owners or their agents to file an appeal petition for review with the purpose of lowering property tax.
Owners and managers know that property tax is habitually a component of common area maintenance expenses (CAM) and taxes affect an owner’s bottom line. Often an owner or manager faces difficulties in their ability to increase rental income rates as CAM allocations increase. Appealing the property tax value and achieving a valuation reduction can be key to reducing CAM expenses.
This is because most tenants want to know what their total monthly lease payment will be when they sign a lease. They want to know their full obligation for rent in advance. For example, if a tenant can afford a total rent of $18/sq. ft. and the CAM charges are $4.00/ sq. ft., then the building owner collects a net amount of $14.00/sq. ft. If CAM charges were to increase to $5.00/sq. ft., due to higher real estate taxes, it becomes uncertain whether the owner can increase or even maintain the same lease rental rate. As a result, property taxes affect the owner’s bottom line.
Meanwhile, the commercial and residential markets have been under severe distress during the last few years. The number of arms-length, market sales have significantly declined. As a result, there are a reduced number of sales for the assessor to utilize to properly set property values. This makes it difficult for the assessor to properly value properties to reflect the current market value. Consequently, the assessor often focuses on older sales, even though this data does not necessarily accurately reflect the existing market (or lack thereof).
How it works
Every property owner should closely examine their 2014 valuation notices and consider whether an appeal would be warranted. The local assessing offices mailed out their 2014 Notices of Value on January 31, 2013. The time in which to appeal the tax value is limited to a window of only 60 days, with the appeal filing deadline set for April 1, 2013.
If no petition for review (valuation appeal) is filed within this 60 day period, the valuation noticed by the assessor is used to establish the tax bill for that property parcel(s) for the following year. The Notice of Value occurs one year prior to the tax year in which property taxes are billed and due. Therefore, the notices sent out January 31, 2013 are the notices for taxes due in calendar year 2014.
Since the majority of tax consultants work on a contingency basis, there is usually no “down side” in having the property’s tax valuation reviewed to determine whether an appeal is merited. Meanwhile, the reduction in property taxes can considerably reduceCAMfor owners and positively affect the bottom-line.
Jodi A. Bain and James D. Wezelman are with The Sage Tax Group, Tucson’s largest real estate and personal property tax consulting firm. Sage Tax Group members have over 100 years of experience in the tax consulting business. The firm handles the majority of tax appeals for multi-family, retail, industrial and office properties in Southern Arizona. Ms. Bain can be reached at 520.885.4617, extension #101, if you have any questions.
Arizona laws regarding the appeal of tax valuations are highly complex. This article summarizes some main points of the appeal process only. One should seek the advice of a professional tax consultant or attorney regarding specific questions.
Photo credit: bills.com
We’ve been in the prognostication business of late, and have gathered a great deal of data on the Tucson commercial real estate markets in one slide deck.
Earlier this week at the annual Tucson BOMA/IREM Economic Forecast Breakfast, we overviewed the Tucson office, retail and industrial markets, and painted a picture of cross-border real estate activity in the Arizona/Sonora region. Click the image below to access the full slides.
2012 IN REVIEW
In short, 2012 was a transition year for Tucson’s commercial markets, and for many of us, ‘fun’ returned to the marketplace by year end. Uncertainty shifted to stability, as all three primary sectors (office, retail and industrial) experienced positive absorption in 2012. While fundamentals firmed and continue to improve very gradually, no significant pressure exists to move values, lease rates or fuel demand for speculative construction.
Expect slow improvement in occupancy, lease rates and absorption. With health in the Phoenix commercial real estate markets and a stronger showing for Tucson residential real estate, signs point to a continued uptick.
Construction will be largely limited to user-driven projects, while we expect renovations to increase.
Look for more development activity along the Tucson Modern Streetcar line, and a continuation of the downtown renaissance. Cross-border commerce between Arizona and the State of Sonora, Mexico, our bordering state, should continue to blossom in 2013, and Tucson is well poised to attract employers to ready sites such as Port of Tucson, UA Tech Park, Rockefeller Group Distribution Center, the Lisa Frank facility, and Aero Business Park.
If you missed our State of the Tucson Market Webinar which includes audio commentary on these markets plus the Tucson multifamily market, click here for the archive and click here for the slides.
You may also download individual market sector reports from our website – scroll down to 2012.
Barbi Reuter, RPA oversees Cushman & Wakefield | PICOR’s operations, research, finance and marketing/social media activities and serves as Associate Broker. One of 13 company Principals, she is active in industry and community leadership, through such organizations as Commercial Real Estate Women (CREW), Greater Tucson Leadership, Arizona Town Hall, and board work for the Tucson Girls Chorus and PICOR Charitable Foundation. In 2012, she was named a Woman of Influence by Inside Tucson Business.
Photo credit: Lyn Sims Photography
The University of Arizona’s Economic and Business Research Center publishes quarterly data and insights on the Arizona and Tucson economies. Read the editor’s synopsis below of current economic conditions, with links to detailed stories.
According to d…
For the first time, C&W | PICOR Commercial Real Estate has partnered with The CoStar Group to deliver a “State of the Tucson Market” webinar, which will include perspectives from leaders of each commercial division and include the Sonora, Mexico bo…